The UK’s largest housebuilder can no longer find development opportunities in central London that meet its required rate of return.
Barratt Developments will now focus on schemes in Zones 3-6, because Zones 1 and 2 cannot satisfy its minimum hurdle rates.
Chief executive David Thomas said that Barratt had not been successful on a bid in central London since September 2014, when it bought the Kidderpore Avenue site in Hampstead, NW3.
“In London we are competing against commercial developers and people investing money into the London markets with different objectives to a housebuilder,” he said.
“That is the reality of the market, and in that situation you can do one of two things: drop your hurdle rates, or go elsewhere.
“Our focus over the past 12 months has been about Zones 3-6 and we have secured a number of opportunities in outer boroughs.”
Thomas blamed the situation on high land values, less demand from overseas buyers and reduced rates of sale caused by an increase in stamp duty.
JLL research suggests central London property sales have fallen by a fifth in the last year, while it downgraded central London growth forecasts.
Barratt currently has around 17,000 homes in development outside of London. Of the 2,000 being built in the capital, more than 70% are priced at less than £600,000.
Thomas said Barratt was willing to look at bulk selling homes to a single buyer. It recently brought to market a portfolio of 300 units spread across four of its London developments as a potential starter PRS portfolio, valued at £320m.
He said: “More recently we have said we want to look at the appetite for bulk transactions. So we went out and said, ‘Here is a potential portfolio, who is interested?’
“That is consistent with the fact that you have got to look at market conditions… We are not shy about it, you have got to be realistic.”
Barratt has already made two bulk sales from schemes: 88 units in its Nine Elms Point project, SW8, and around 60 in Endleby Point in Greenwich, SE10.
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