(Bloomberg) -- Sales of London homes under construction rose as developers lowered asking prices for the first time since 2010.
About 6,900 of the properties were sold in the first quarter, the most in three years, with about 30 percent snapped up by institutional investors betting on rental properties, according to a report by Molior London seen by Bloomberg News.
Londoners are increasingly choosing to rent after years of surging values made it harder to buy a home. Invesco Ltd., LendLease Group, Greystar Real Estate Partners LLC and the Canada Pension Plan Investment Board are among investors buying or building rental properties in the city to capitalize on the demand.
“Without the build-to-rent sector, it is likely that weeds would still be growing on a number of the sites concerned,” analysts at Molior said in the report. “Perhaps in the easier times, when most of these projects were conceived, a better margin was envisaged. But at this point in time, the priority is presumably to make a sustainable living and keep projects moving through the pipeline.”
U.K. homebuilders rose or pared their losses on the news. Crest Nicholson Holdings Plc climbed as much as 1.3 percent, while Taylor Wimpey Plc was down 0.4 percent at 2:35 p.m., after dropping 1.7 percent earlier. Berkeley Group Holdings was little changed after falling 1.1 percent.
Property prices in the city had their first drop since 2009 in February, according to the Office for National Statistics. Values fell 1 percent from a year earlier, compared with annual growth of as much as 20.6 percent in August 2016.
Of the 66,000 properties being built in London, 44 percent remain unsold, down from 46 percent at the end of 2017, according to the report. Based on the current sales rates, it will take 1.1 years to clear the excess supply, down from 1.4 years at the end of last year, the report showed.
While the sales figures are encouraging, London’s housing market is not out of the doldrums yet and values are set to fall further, according to Molior. It didn’t specify how much prices had been cut in the first quarter.
“Excess starts have built up over a number of years and there remain plenty of developments with relatively stagnant sales positions that will eventually have to be sold,” they said in the report. “This will often involve some form of price concession and may uncover a few instances where initial development appraisals were overly optimistic.”
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