LUXURY-home developers plan to build more than 20,000 properties in London over the next decade, ramping up construction despite slowing price gains, consulting firm EC Harris said.
The 10-year pipeline stood at 15,000 homes a year earlier, EC Harris said in a statement. There's been a 55pc increase in the number of homes planned in the luxury market's lower end, mainly on the edges of neighbourhoods like Mayfair and Knightsbridge.
There's a risk that those investors will grow weary of repeated sales exhibitions promoting London property, Mark Farmer, head of residential at EC Harris, said in the report.
"Pre-sales are happening in a much more crowded market and there are increasing challenges for developers and investors which are resulting from this," Farmer said.
"We are seeing a critical juncture in the market, especially at the lower end of the prime range, where it can no longer be a given that you should spend more to make more."
Luxury-home values in central London rose 6.8pc in October from a year earlier, the slowest in about four years, according to London-based broker Knight Frank.
Developers now expect to construct London homes worth more than £50bn (€60bn) over the decade, EC Harris said.
Oversupply is unlikely in the luxury market because construction rarely happens if companies don't achieve their pre-sales targets, the company said.
Not everybody agrees. Central London's "top-end residential market, particularly on tower buildings, is beginning to look overpopulated for the amount of space being built," David Atkins, chief executive officer of developer Hammerson claimed.
About 29pc of the planned luxury apartments will be located on the south bank of the River Thames, stretching from the area around Battersea Power Station to Tower Bridge, according to EC Harris.
Developer Battersea Project Holding Company plans to start selling 250 apartments at the station for £2,500 per square foot in April, more than double the price for apartments sold in the first phase of the project.
Profit margins for developers may be squeezed by rising building costs, EC Harris said.
Farmer predicts the price of building a home in London will rise about 5pc this year and as much as 6pc in 2014.
Developers typically need to sell 30pc to 40pc of larger apartment projects before banks will provide credit for construction, Farmer said. The numbers can vary depending on the developer's track record.
EC Harris, based in London, defines luxury homes as those that will sell for £1,250 per square foot or more. That's up from £1,100 last year.
Wealthy prospective buyers may be deterred by talk of higher taxes, Farmer wrote in the report.
The UK's Chancellor of the Exchequer George Osborne is considering a capital-gains tax on the second homes of foreign owners of UK real estate, Sky News reported on October 31.
"This issue is fast becoming the biggest cloud gathering on the horizon of London prime residential," Farmer said. (Bloomberg)