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LONDON-The withdrawal of investment purchasers–traditionally accounting for between 50% and 70% of all stock sold each year–has put the central London residential development industry under pressure, according to new research from FPDSavills.

And there could be worse to come, according Richard Donnell, author of the report. “Poorer prospects for capital growth, low yields and a weak rental market lead us to believe that that investor demand will fall back sharply over the coming year,” he said.

Fewer investment buyers means that developers will need to focus on owner occupiers as the key source of demand. A choosier, more price sensitive breed, they buy later into a development’s life than the investor and this is set to have an impact on developers’ cashflows, especially at a time when marketing costs and the use of sales incentives are on the increase.

And although some developers are holding back from new schemes, FPDSavills expects market supply to increase. “Whilst the quantity of standing stock is lower than a year ago we expect it to be much higher this time next year. This will be a combined result of a generally much lower take-up over 2003 and indirect competition from recent purchasers, whose concerns over the property market may prompt them to sell their virtually new properties on the market second hand.”

FPDSavills forecasts that headline asking prices for new build stock in central London are set to fall back by around 10% over 2003. And looking ahead Donnell warned: “We do not expect market conditions to bounce back strongly in 2004. Our current expectation is that take-up will remain weak over the course of this year and into next, primarily as a result of affordability issues. The good news is that such tight supply pipeline means that when demand picks up the market could bounce back quite quickly.”

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