This is the third in a series of stories on global property that examines the shifts and trends in the housing market on the international stage.
If you look south across the Thames from Chelsea to the iconic Battersea Power Station at night, a constellation of red lights from the tops of construction cranes fills the London sky.
They not only hang over this $14.8-billion redevelopment by Frank Gehry, where rock star Sting recently bought a flat, but a ribbon of these lights stretches for two kilometres east along the riverfront to the edge of Vauxhall across from Westminster.
An incredible building boom is sweeping one of the world's oldest cities. Many tall office towers with quirky names are going up in London's financial district, but across the city 26,000 homes were also under construction in 2014. London, however, needs closer to 50,000 built each year just to keep up with demand, and a pipeline of 212 tall condo towers are waiting to cope with the backlog.
While these projects offer opportunities for investors – home prices rose 17.8 per cent in London last year – areas of the city are not without growth pains, and some worry foreign investors will leave properties empty.
The area around the decommissioned Battersea station "will be unrecognizable in a few years' time," said David Phillips, who with his wife Linda recently moved into Riverlight One, the first of the towers growing beside the old power station redevelopment.
The building is the first of six crystalline 12- to 20-storey Rogers Stirk Harbour & Partners designed pavilions with exterior glass-walled elevators and prices starting at $1.2-million a unit and ending at more than $5.5-million.
"My wife and I bought an apartment at Riverlight as a pied-à-terre during the week and as a weekend city base," said Mr. Phillips, head of investor relations with a Norwegian oil contractor, to complement their first home more than an hour away in Essex.
Riverlight marks the beginning of a huge community development known as Nine Elms spanning the boroughs of Lambeth and Wandsworth, where 46 multiuse towers are planned.
"It's almost a new town within central London," said Helen Fisher, program director, at the Nine Elms Vauxhall Partnership – a public-private partnership representing the area's main developers and several government bodies managing a £1-billion ($1.865-billion Cdn) infrastructure investment.
"We're now looking at a target of 20,000 new homes and 6.5 million square feet of commercial space," Ms. Fisher said of the plan to develop 227 hectares of land by 2025.
Two new tube stops extending the London Underground's Northern Line; a new footbridge across the Thames that will connect Nine Elms to Chelsea and Pimlico; and redevelopment of the New Covent Garden Market, "are some of the main long-term attractions we see of owning a flat in this part of London," Mr. Phillips said.
Other areas of the city are growing, too. Developments in the former 2012 Olympic area, Tower Hamlets, Canary Wharf, and Greenwich represent about 40 per cent of tall condo properties becoming available over the next five years, according to Adam Challis, a residential property analyst with property consultants Jones Lang LaSalle.
What these other areas don't offer, Mr. Fisher says, are the amenities and proximity to central London that is attracting tenants such as Damien Hirst, who is setting up a gallery in Vauxhall to exhibit 2,000 pieces of his own art collection this year, and new institutions such as the American and Dutch embassies.
London is famously the domain of low Georgian and Edwardian townhomes with protected views of the 111-metre-tall St. Paul's Cathedral. But according to Britain's Office for National Statistics, Greater London will grow 13 per cent from 8.3 million people today to 9.4 million by 2022.
To cope with the influx the 2011 London Plan outlined new planning permissions for tall buildings in what is known as the Central Activities Zone so the city could grow up rather than out in a sustainable and attractive way.
Since the financial crisis, wealthy foreign investors from Russia, China and the Middle East have treated London as a safe haven and bought property there as a stable investment, creating extra pressure in addition to population growth.
"We know that there is a huge amount of foreign interest in buying" in Nine Elms, Ms. Fisher said.
This is a worry for Will Martindale, Labour's candidate for Battersea and Wandsworth in Britain's May 7 general election. He sees foreign investment "distorting the housing market" by pushing prices ever higher because of demand. Mr. Martindale's concern is twofold: if people who live in the community cannot afford to buy a home there, and if outside investors leave their properties empty. He proposes new taxes to combat both issues.
"At the moment my feeling is that the jury is out as to how much we're going to see all these apartments being left empty," said Peter Murray, chairman of New London Architecture, a think-tank and forum for planning in the city. "There is plenty of evidence to suggest that a lot of the investors actually want to rent their apartments out," he continued, since "they take some income as well as capital growth."
However, "it's a concern that there will be a new, large chunk of London empty and without any of the trappings that make a decent piece of city," he added, since "a lot of that is the liveliness of the people and the activity that takes place between the buildings."
The lack of a master plan for the area, he said, has neglected opportunities like covering over the railway viaduct that cuts east and west through the development to add value to the space. As plans stand now, the archways underneath the viaduct will become retail spaces or pedestrian footpaths connected to an infrastructure of bike paths and parks.
Far from the price increase seen last year, property analyst Adam Challis at JLL is expecting single-digit growth in 2015 with uncertainty swirling around which party will win the election and the shape a potential coalition government will take.
Analysts at Knight Frank predict 3.5-per-cent growth in the mainstream residential market in 2015, and a total of 25.8-per-cent growth by 2019. Central London properties, Mr. Challis said, have returned roughly 8 per cent annually over the last 30 years.
By the beginning of 2020 Ms. Fisher expects most of the cranes in Nine Elms will be gone and two-thirds of the commercial space and 40 per cent of the residential properties will be complete.
Canadian investors who can afford between $930,000 and $2-million will definitely find something, she said, but "it won't necessarily be very big."
Knight Frank's growth predictions for mainstream residential sales in London 2015-19.
Source: Knight Frank U.K. residential forecast and risk monitor, pre-election edition, February, 2015