A distinct change in climate seems to have taken hold among some of the capital’s larger, high-density residential projects.

Alastair Stewart

High-profile projects are being sent back to the drawing boards and owners of developments are bulk-selling units supposedly already fully sold to ‘off-plan’ buyers. The discounts are eye watering, I’m told. Gravity appears to have finally taken hold after months of burgeoning supply fuelled by overseas developers building mainly for overseas investors.

Crippling tax hikes, Brexit and the threat of sanctions against Russians dampened buyers’ appetite, but builders kept on building – until now.

The first evidence of climate change was Qatari Diar’s dismissal of main contractor Multiplex on phase four of its opulent Chelsea Barracks project, just days before construction was due to start.

QD is to retender the job, admitting: “We are considering how best to procure the building works in an increasingly difficult construction market.”

The scheme could not be more iconic: flat prices are reported to start from just under £6m and original architect Lord Rogers was replaced in 2009 after Prince Charles voiced his criticisms of the scheme to the Qatari royals.

Meanwhile, Chinese developer Greenland Group ordered a rethink of London’s tallest residential tower, the 67-storey ‘Spire’ north of Canary Wharf, with pre-construction work having started.

In its February results, Capital & Counties conceded that it was seeking to “evolve” the masterplan of its giant Earls Court development, having again written down its valuation.

Spire tower, London

Are revisions of the Spire tower a sign of resi ambitions shifting?

At Battersea Power Station, chief executive Rob Tincknell has stepped down after over a decade of steering the project through one obstacle after another.

A couple of joint ventures involving London housebuilder Galliard this month sold housing land; one in Poplar, to Chinese hopeful Country Garden and, more tellingly, the other in Silvertown, to Gazeley, not for housing but for a warehouse.

Looming oversupply

For anyone studying the data or counting the cranes over London’s skyline over the past five years, the only surprise should be how long it took for reality to sink in for the capital’s mainly foreign-backed mega-projects. Molior London’s research shows the number of flats being built has steadily to grown to 65,000 units and the proportion of those unsold has also been rising.

This looming oversupply has hit pricing and escalating build costs and delays have squeezed profit margins to the extent that many schemes are unviable, perhaps explaining recent ‘rethinks’.

But the potentially biggest threat could be to cashflow rather than profit, if ‘committed’ buyers don’t turn up. Most of the largely foreign off-plan buyers put down deposits, some hoping to ‘flip’ properties before completion. But it is likely that personal circumstances, or cold feet’, rather than Brexit etc, may deter many from completing.

This probably explains why a dozen or so developers seem to have quietly attempted bulk sales to cut their losses and, critically, service borrowings. I’m told swathes of apartments are being offered to funds, wealthy individuals, build-to-rent firms and even housing associations (try explaining the latter to owner-occupiers who paid ‘top dollar’). Reading between the lines, discounts from peak valuations may be well above 30%.

Pragmatic companies may take this on the chin, pay off their banks and live to fight another day, before lenders coerce less experienced rivals to follow suit in reaction to a tide of increasingly distressed sales. As Louis XV lamented, “après moi le deluge”.

Alastair Stewart is an equities analyst and commentator