Unstoppable foreign investors are the real drivers of London property

Overseas investors – not Brits – are fuelling the British capital’s real estate boom

Foreign-territoryFor centuries, London has been the seat of kings and queens. Since Alfred the Great settled there in 886 AD, royalty has owned some of the city’s most iconic buildings, their grandeur symbolising the wealth and power of a thriving and influential kingdom. Today, it’s much the same – with one striking difference: most of London is owned not by the British crown, but by the Qatari royal family.

The startling fact that so many London properties are now owned by the Qataris resonates with a wider trend. At all levels of the London property market, international investors are moving in.

Research by global real estate consultant Knight Frank found that from mid-2011 to mid-2013, non-UK nationals made 69 percent of prime central new-build purchases in London, while non-UK residents made 49 percent. More recently, the firm found that between July 2014 and July 2015, some 63 percent of buyers of homes worth more than GBP10 million (USD15 million) were non-British.

Rich foreigners buying properties in London is nothing new – “one thinks of the Huguenots,” said Jeremy Raj, property partner at London law firm Wedlake Bell – but things have really taken off in modern times. “In terms of buying properties off-plan in the buy-to-let market, a significant percentage of the market was being snapped up by Hong Kong investors throughout the 1990s and beyond.”

But ironically, the real boom in foreign investment owes much to the bust of 2008. “Initially, following the financial crisis, the prime central London market stopped dead in its tracks,” explained Cornelius Medvei, real estate partner at global law firm King & Wood Mallesons.

“Then a number of foreign investors, looking for a safe place to put their money, realised the arbitrage potential of buying prime residential property in a depressed – or at least uncertain – market at prices discounted by the fall in value of sterling.”

That cash surge boosted prices. “The growing importance of private wealth in the residential sector, focused on safe-haven locations, has driven demand,” added Medvei.

The safety factor is key to London’s popularity, especially among Russian and Middle Eastern buyers. Knight Frank’s 2015 Super Prime London Insight research notes that, between 2014 and 2015, “the number of Middle East buyers rose to 16 percent from 11 percent on the back of geopolitical instability in the region.”

Geopolitics aside, London is seen as a safe haven in purely financial terms – especially after this year’s Conservative election win, which saw the possibility of a Labour-imposed “mansion tax” recede. “The attraction of London is unlikely to wane,” added Raj. “The preponderance of demand over supply – unlikely to be addressed any time soon  along with the relative security of sterling, makes the investment decision an easy one.”

And while Russian and Middle Eastern buyers have been in the spotlight with high-profile luxury purchases, Knight Frank highlights increasing Asian investment interest in new-build residential property, with buyers from Singapore and Hong Kong accounting for 40 percent of purchasers of new-build property in central London.

Overall, property deals in London netted the UK government GBP3 billion (USD4.56 billion) in stamp duty tax in 2014-15, but not everyone is happy with the city’s global investment appeal.

According to the Nationwide Building Society, the price of a typical home in the capital is more than GBP440,000 (USD681,500), which is double the UK average, with London prices rocketing by 10.6 percent between this July and October. One of the few things that Sadiq Khan and Zac Goldsmith – the respective Labour and Conservative candidates for the forthcoming London mayoral election in May 2016 – agree on is the assertion that many ordinary Londoners are being priced out of their own city.

While many factors drive up prices, Medvei believes foreign investment is a catalyst. “The driver of house-price growth has always been the relationship between three key variables: demographics, economics and availability of supply.

“Where demand comes from non-domestic buyers, all three variables are super-charged by wealth which is not dependent on the local economy; by demand which reflects an individual’s desire to invest their wealth safely; by supply which is limited by the volume of construction in prime locations.”

The ripple effect of foreign investors snapping up property in central London is being felt throughout the city, according to campaigners.

Dan Wilson Craw, policy manager at Generation Rent, which campaigns for affordable rented homes, said: “The sale of London property to foreign buyers is part of a wider culture of treating houses as investments instead of homes.

“Many developments in central and inner London are sold off-plan, denying families who are trying to buy a home but don’t have the means to pay for one while it is being built.

“Property values are rising so fast that some investors can afford to leave their assets empty, which helps none of the Londoners struggling to make ends meet. The UK and London governments should be ensuring that any new developments serve those who live and work in London as a priority.”

With recent street protests against gentrification turning violent, and the upcoming mayoral election being billed as a “referendum on housing,” the coming months will see foreign investment in London’s property market come under closer scrutiny than ever before.


Source: Property Report


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