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The previously unloved Nine Elms part of London is without doubt the UK鈥檚 fastest moving regeneration project - a developers鈥� playground to be filled with 20,000 homes in a constellation of residential towers a hair鈥檚 breadth from the heart of the capital. But it is also, if you read many recent reports, about to become the biggest disaster in UK development: a victim of London鈥檚 prime property downturn, which will leave the area an unfinished and incoherent mess of bland, investor-targeted flats, empty of people and haunted by the shattered dreams of over-ambitious developers.

Certainly, there are warning signs - a search on Rightmove shows that a large number of off-plan buyers in the unfinished developments are attempting to 鈥渇lip鈥� their properties before they鈥檙e even completed, and the agent talk is that many have been on the market for months, unsold. All of the indices show that foreign investors - in popular perception the main purchasers of new apartments in Nine Elms鈥� riverside apartment buildings - are not buying in the numbers they were a year or 18 months ago, causing a fall in 鈥減rime鈥� prices. And meanwhile the cost of building out the developers鈥� plans in the middle of the biggest construction site in the country has shot up amid the broader market recovery.

But talk to those involved in the scheme and a very different picture is painted, of a diverse and exciting regeneration plan underpinned by the huge latent demand for homes, 拢1bn public investment in a new tube line, and major new employers such as the American Embassy. The problems, they say, are a media confection designed to pander to the unease about foreign investor buyers. So with so much of the construction industry鈥檚 London residential pipeline bound up in the plans for the area, will the real Nine Elms please stand up?

Battersea panic

According to the Nine Elms Partnership, a joint venture between the neighbouring boroughs of Wandsworth and Lambeth set up just six years ago, 20,000 homes are due to be built on the stretch of river between Vauxhall and Battersea, in a holistic masterplan providing green spaces, visitor attractions and 25,000 permanent jobs. A huge amount has happened since the partnership鈥檚 inception, with the tube investment, US embassy construction and proposed New Covent Garden Market transformation all acting as catalysts for a rash of developments to come on stream. Of course the biggest beast in the jungle is the 4,000-home redevelopment of Battersea Power Station, the development of which finally got off the ground in 2012 after three aborted attempts over 30 years. The success, therefore, of this 拢8bn scheme, backed by a consortium of Malaysian developers, is totemic for the development as a whole. And it is not long since the project was able to boast of making 拢600m of sales in four days with its 860-home first phase. Even the second sales launch, in 2014, sold nearly all of its 254 properties within five days. Fast-forward two years and the development is instead suffering headlines like 鈥淏attersea panic鈥� and 鈥渋nvestors flee鈥�.

Rob Tincknell, chief executive of Battersea Power Station Development Company, admits to being immensely frustrated by what he describes as 鈥渘onsense scare stories鈥� that 鈥渏ust affect our ability to deliver this amazing project鈥�. Stories about falling prices at Battersea have, he says, been based on investors attempting to resell homes at huge profits and then having to reduce their expectations. The Power Station itself has never reduced its prices and not a single one, he says, has been re-sold beneath its original sale price. 鈥淭he average resale value was running at 30% above sale price, it鈥檚 come down a bit to 20%. Across the competed schemes in Nine Elms there hasn鈥檛 been a single purchaser default.鈥� Tincknell admits there has been a slowdown in the market, but only in comparison to 鈥渢hree exceptional years鈥�. The firm has still reaped 拢110m of sales across 50 properties since November, with the focus now shifting to letting of the commercial units.

Contrary to public perception, he says, 60% of sales have gone to British passport-holders, with the proportion of British owners increasing as properties are re-sold at the rate of 鈥渁bout 10 deals a month鈥�. Likewise, Wandsworth Council leader and co-chair of the Nine Elm Vauxhall Partnership, Ravi Govindia, said the horror stories in the national press were untrue. 鈥淪ales rates have gone from incredibly fast to a more normal level but that was always going to happen at some point.鈥�

The backdrop to concerns over Nine Elms is the general drop-off in overseas buyers, for whom a combination of currency fluctuations, domestic economic and political instability in their home countries, higher stamp duty rates on purchases above 拢936,000 and, for some, fears over the UK economy post-Brexit, have conspired to make London a far less attractive home for their money than previously. This issue saw price falls in 鈥減rime鈥� parts of London last year, but is particularly focused in the new build sector because of its popularity with investor buyers. Buyers of homes above 拢1.55m will now pay at least 拢100,000 stamp duty; 拢140,000 if they are a second home.

A lot of funders and lenders I know are not interested in NINE elms because there鈥檚 a lot of negative talk - it鈥檚 become a self-fulfilling prophecy

Randeesh Sandhu, Urban Exposure

Agent Cluttons said earlier this year that with 60,000 new build homes set to complete in London in 2016 and 2017, a 鈥渟izable proportion鈥� will drift back on to the market before completion, potentially undercutting the value of new homes. 鈥淒omestic buyer activity is unlikely to offset this trend significantly,鈥� it concluded. Concerns over the drop in prime sales have seen the stock market鈥檚 housebuilder poster boy, Berkeley Group, suffer a 13% fall in its share price since Christmas because of fears over its exposure. More than 5% of shares in the firm, which has three schemes in the Nine Elms area, are now held by 鈥渟hort-sellers鈥� betting its price will fall further.

Oversupply

In this context the most common accusation levelled at Nine Elms by its critics is that of oversupply of new homes. With 20,000 units planned in the area, the vast majority of which will be apartments in high-rise towers or large blocks, a huge number of purchasers are needed. One estate agent working in the area, but whose main business is north of the river in the established prime areas of Kensington and Chelsea, says: 鈥淭he market is pretty bad at Nine Elms. You鈥檝e got thousands of homes coming on to the market and they鈥檙e all essentially identical high-rise apartments and it adds up to huge oversupply.鈥� He says one major scheme has more than 100 properties current advertised for resale. 鈥淭hey鈥檙e just not selling,鈥� he says.

Former EC Harris residential head Mark Farmer, now director of consultant Cast, says: 鈥淭here鈥檚 a basic supply and demand issue there. It鈥檚 because of the [developers鈥� business] model, which is all about retail investors buying off plan in Asia. Previously they could absorb that supply, but now that market is not particularly strong.鈥� Farmer says he hasn鈥檛 taken on work in his new business in the area because of his concerns.

However, Wandsworth鈥檚 Govindia disagrees. 鈥淭here鈥檚 a misconception that every new property is a riverside penthouse and they鈥檙e all on the market right now,鈥� he says. 鈥淚n reality these homes are spread across many different markets, price points and tenures and will be built gradually.鈥� Likewise, those who are working in Nine Elms say these fears are overstated, with construction due to take 20 years. Randeesh Sandhu, chief executive at development financier Urban Exposure, which has lent against a 鈥渧ery large project鈥� in the area, says his firm estimates 7,000 homes will come to the market in the next five years. 鈥淲e were nervous at first but once we delved in we found a very different picture. In a market generally undersupplied with housing we think this volume is entirely absorbable.鈥�

Ed Mead, executive director at London agent Douglas & Gordon, who admits there are a rising number of resales, says the overall numbers shouldn鈥檛 be a concern: 鈥淚鈥檓 nowhere near as bearish as some about Nine Elms. Over the timescale proposed, the number of units is entirely reasonable.鈥�

Word on the street

The common complaint of many of the area鈥檚 defenders is that negative sentiment generated by a small number of irresponsibly negative press reports that have misrepresented or misunderstand the facts, is actually now the biggest threat to the project. Urban Exposure鈥檚 Sandhu says: 鈥淕enerally a lot of funders and lenders I know are not interested in the area because there鈥檚 a lot of negative talk. When people constantly write negative things it can become a self-fulfilling prophecy.鈥�

Whether or not the press has been guilty of hyping problems, most commentators agree that developers looking to sell now are having to be more modest in their price expectations. Where prices for existing homes in fringe areas of central London such as Nine Elms are commonly around 拢1,000 per ft2, developers in Nine Elms have been looking to charge anything up to 拢2,000 per ft2 - double the normal price. A 2,000ft2 three-bedroom flat in Berkeley鈥檚 Riverlight scheme, for example, is on the market for 拢3.6m, while agent JLL is marketing a 2,400ft2 three-bed apartment within the original power station itself for a cool 拢8.4m. It is sales of these most expensive apartments which are expected to suffer most.

I鈥檓 nowhere near as bearish as some about Nine Elms. Over the timescale proposed, the number of units is entirely reasonable

Ed mead, douglas & Gordon

One well-placed analyst of the London market said: 鈥淭here are lots of homes being built at the wrong price point. There are developers there that haven鈥檛 sold a flat above 拢1m for a year.鈥� Sandhu adds: 鈥淒evelopers now probably need to be careful of having too many three-bed and penthouse units because it makes them unaffordable,鈥� while Douglas and Gordon鈥檚 Mead says: 鈥淵es, developers are nervous. We鈥檙e finding transactions are happening, but developers are being more realistic about the prices they鈥檙e setting and may well be accepting offers.鈥�

If this is hurting developers鈥� expectations of how much cash they can bring in, even more of a challenge may be the rising cost of then getting the apartments constructed and completed.

While Battersea Power Station鈥檚 Tincknell says rising construction costs don鈥檛 jeopardise his scheme because of allowances made within his overall cost plan, nobody is disputing that costs are rising. Steve Watts, partner at cost consultant Alinea, says: 鈥淭he biggest challenge is the sheer volume of construction in the wider area during a period of rising prices. Often developers鈥� viability models on big schemes are sensitive to relatively small changes in the market.鈥� Market talk is of subcontractors holding main contractors to ransom on prices while finishing trades are increasingly hard to secure at all. Farmer says: 鈥淚n a sense the timing here couldn鈥檛 be worse because you have this issue around the certainty of delivery of construction at one end, combined with a softening of the sales market.鈥�

This week, the developer on One Nine Elms - a pair of towers at 45 and 60 storeys in height - confirmed that it was looking for a new contractor on the project, after failing to finalise a deal with Interserve and its Chinese joint venture partner, China State Construction Engineering Corporation. Speculation is growing that the JV will be replaced with one of Balfour Beatty or Brookfield Multiplex because progress on the scheme has not been as fast as hoped.

Despite all this negative sentiment, no developers have admitted to putting their schemes on hold, and the Nine Elms Partnership maintains there is no reason any will be stopped. Tincknell for one says there is no chance construction at Battersea will slow. However, Farmer says this does not mean many developers are not taking a moment to think things through. 鈥淚t鈥檚 very unusual for people to formally say their project is on hold. But a lot of people are pausing for thought, they鈥檙e looking around and checking sales and construction costs, and considering their options,鈥� he says.

Ultimately, given the paucity of independent data on sales in the area, it is impossible to know for sure whether the bulls or the bears have got it right. But with completion of the 800-home first phase of Battersea due toward the end of the year, the direction of travel will soon be clear from whether - as the critics expect - large numbers of buyers start defaulting on their purchases. 鈥淧hase 1 of Battersea - that鈥檚 what I鈥檒l be looking at,鈥� says Farmer. 鈥淪eeing that occupied will be a real bellwether and a barometer on Nine Elms鈥� health.鈥� With so many developers having so much riding on the success of the area, he won鈥檛 be the only one studying it closely.