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A South African developer’s £110 million (R2.6 billion) bet on a luxury plot of land in London has turned sour, with the property changing hands at a discount that was one of the city’s steepest last year.
Zenprop Property Holdings sold the Kensington site for about £80 million to hotel operator Arora Group at the end of 2023, after high inflation and a wider sales slump thwarted its plan to build a luxury retirement village, according to people familiar with the matter.
Arora, best known for operating hotels in airports and city centres, secured a discount of roughly £30 million from the price paid in 2017, the people said, asking not to be identified because the details are private. The deal was announced late last year, but the pricing wasn’t provided. It’s the latest example of how real estate prices in London’s high-end districts have tumbled from a peak reached almost a decade ago, as developers bear the brunt of stubbornly high inflation. It is likely to be even more painful for Zenprop when taking into account other costs, such as planning fees and interest charges. The deal also comes as a new blow to the builder.
In 2022, Zenprop sold a mansion overlooking Regent’s Park for about £130 million, a discount of more than £50 million on its asking price, according to a Financial Times report. About 12 000 new homes went under construction in the UK capital last year, the fewest in over a decade, according to data compiled by Molior London, as higher interest rates and surging costs weakened sentiment among builders. Some 61 developments were stalled at the end of last year, compared with only 10 sites in 2008-2009, the data show.
Zenprop’s UK arm initially bought the 2.7-acre site through a partnership with luxury developer Auriens in 2017.The stalled development, dubbed "caviar care" by critics, is situated on the site of the former Heythrop College, which closed in 2019 following recruitment difficulties and rising costs. It has a gross development value of over £750 million, according to Knight Frank.
An advertisement released last year by the broker said the site, which has planning permission for roughly 150 units, could be suitable for alternative uses such as a hotel. A few months before the sale, Zenprop asked the local authority for permission to postpone its commitment to build five affordable homes on the site, claiming inflation had made the project a "financial burden", according to a local news report.
A representative for Arora Group declined to comment, while Zenprop didn’t respond to requests seeking comment.
Broker CBRE Group said in its UK Real Estate Market Outlook that senior living is unlikely to see yield compression in the near-term, contributing to expectations of a slow start to 2024. That’s as affordability — described as a key driver to growth in the sector — is squeezed by the worst cost-of-living crisis in a generation.Higher financing costs have restricted the number of pensioners taking out property loans, suggesting the affordability crunch is impacting the elderly.
New mortgages secured by borrowers over the age of 55 dropped 37% year-on-year between October and December, according to industry group UK Finance.Meanwhile, the land market is adjusting to lower demand and softer house prices, as monetary tightening stops some developers from building.
Residential land values in London’s best districts fell 5% year-on-year in December, adding to a longer-term slump that began in 2016, according to data from Knight Frank. Arora Group, founded by billionaire Conservative Party donor Surinder Arora, owns the Fairmont Windsor Park Hotel in Surrey where UK Prime Minister Rishi Sunak and European Commission President Ursula von der Leyen signed a post-Brexit deal last year.
