London's Prime New Development Market May Be Flattening

Estate agency Knight Frank has said that the new development sector of London's prime residential market 'may be flattening out'.

The firm's optimism rests primarily on rising investor interest in the sector because the price drops of the last 10 months have led to the availability of impressive rental yields of up to 10%, which makes them currently even more attractive against the back-drop of 1% interest rates and the performance of other investment vehicles.

In a statement about the findings Jon Neale, head of development research at the firm, said: "Over recent years, investors in rental property have relied on increases in house prices to justify their purchases. Now, however, it is beginning to make more sense to invest in housing for the rental returns alone -- particularly as so many other investments are performing so poorly.

"Unsurprisingly, there is increasing interest from investors in smaller stock, particularly well-located one and two bedroom flats. Although rents have fallen across the capital, the drop has been less pronounced for the lower end of the prime London market."

The report also said that the land-market is being boosted by the current comparative strength of the rental market, with "many developers are considering the option of 'build-to-let' -- developing homes which they hold and let out -- given the potential [rental] returns available."

Knight Frank also noted increasing interest from overseas investors in new build properties, who are seeing the price drops exacerbated by the fall in the value of Sterling, Knight Frank's last report noted that increased activity in the market from overseas investors is having a positive effect on the whole market