This interesting article by Hannah Kuchler of FT on September 9th, 2013 reveals foreign property buyers interest in purchasing new homes in London would cause problems to the domestic would be homeowners.
Foreign property buyers may be looking beyond
London’s
most pristine streets to purchase in less desirable parts of the
capital but some estate agents argue they are not distorting the housing
market for one simple reason: most live and work in London. As mansions
on the streets of Kensington have been bought up by Russians and
Italians, and even new-build developments in less prestigious areas are
being advertised in Singapore and Hong Kong, some have
feared a new housing bubble fuelled by foreign money.
Tales abound of whole blocks of flats left empty by arm’s-length
investors awaiting capital return, but estate agents insist that changes
in the market simply reflect the international metropolis that London
has become. Yolande Barnes, director of residential research at the
estate agent Savills, argues that blaming foreign investors for fuelling
a boom in London house prices is “verging on the xenophobic”.
“There’s
a lot of money in London, whether it is from UK nationals or foreign
nationals, and simply not enough housing,” she says. “It’s true that the
middle class has never been able to live in Mayfair. But ‘Mayfair’ has
now become a lot bigger – and includes Bermondsey.”
She says the number of foreign buyers – about 38 per cent of
purchasers of prime London property overall – is close to the 35 per
cent of Londoners who are born overseas. As few are predicting the mass
departure of migrants, analysts do not think the bottom is likely to
drop out of this market any time soon.
The housing charity Shelter says the UK is building half of the
250,000 homes required each year to meet rising need. A shortage of
housing has meant the proportion of homes in the capital owned with a
mortgage dropped by 18 per cent in the decade to 2011, while private
renting rose by 63 per cent, according to census data.
Some in the property market do worry that the surge in overseas buyers causes problems for domestic would-be homeowners.
“It is fantastic that London has this magnetism, but the reality is
that prices have skyrocketed and are, for many locals, simply out of
reach,” says Charles McDowell, an estate agent specialising in prime
London property. “It has existed at the top end of the market for a long
time, but the overseas interest in the mid and low market housing is
relatively new.”
Liam Bailey, global head of residential research
at Knight Frank, the estate agents, says foreign buyers might be looking
beyond traditional areas such as Kensington and Chelsea precisely
because they live and work in the city. The
eurozone crisis
has drawn more European professionals to London to develop their
careers or businesses, he adds. “This is especially noticeable in areas
like the City fringe and the Southbank – areas which were not on the
radar of wealthy foreign buyers a decade ago.”
Foreign buyers are more dominant in the new-build market, purchasing
nearly three-quarters of new homes in central London. Most of these are
advertised at overseas events in places such as Singapore and Hong Kong
before being offered to UK buyers, according to research from Knight
Frank.
But the new-build market is a small section of the whole, about 20
per cent of all transactions in 2012, and buyers do rent out the flats
they purchase, says Savills’ Ms Barnes. “It seems to be a popular notion
but if the lights are out at 8pm it is because the residents are out in
London enjoying themselves or working long hours – not because they are
empty properties.”
Mark Prisk, the housing minister, warns not to “throw the baby out
with the bathwater” when talking about foreign buyers. He says money
from foreign buyers willing to buy off-plan helps developers get new
schemes built – which leads to a greater supply of housing for everyone.
“It is a mistake to think if we bar people from abroad from investing
in housing, this will help. All it will do is it will never get off the
ground.”
For Henry Overman, a professor of economic geography at the London
School of Economics, there is a simple explanation for London’s house
prices: you just need to “do the maths”. “In the [2011] census the
population went up by 4m but we built 1.4m homes in a decade,” he says,
adding that the trend was seen outside London where there were far fewer
foreign buyers. “In southern Manchester, property prices are pretty
high relative to incomes, which is put down to a supply constraint and
domestic demand ... prices are high in most successful places in
Britain.”
While few dispute that there is a shortage of housing in London, some
argue there are areas of the market that appear overheated. Analysts at
Fathom Consulting, the research and consultancy company, say valuations
of prime central London property are more vulnerable. The price of a
typical property in the most expensive parts of London is 6.5 times the
national average – up more than 20 per cent in the year from mid-2012.
Danny Gabay, director of Fathom Consulting, says
prices of high-end central London property are more driven by global
equity prices and currency flows than house prices in the rest of the
UK. He believes that the withdrawal of
quantitative easing
by the US Federal Reserve is the biggest threat to house prices in the
most expensive central London areas, which he thinks are about 10 per
cent overvalued.
“The gradual withdrawal of monetary stimulus by the world’s central
banks risks removing one of the key supports to global asset prices,
including prime central London,” he says.
But owners of some of London’s most prestigious
properties could put their faith in the new governor of the Bank of
England, according to Mr Gabay. If
Mark Carney
can convince markets that policy tightening in the UK remains a “very
distant prospect”, prices could just about stay steady, he says.
