Foreign Investment in London

Graemsay

Graemsay

The London market is definitely weird, as it's continuing to rise despite an economic downturn, a shrinking finance sector, and ongoing uncertainty about just about everything.

Anyway, the FT has a piece up today which shows just how dependent it is on foreign buyers...

Lang-LaSalle-London-Property.png


This diagram isn't about super prime properties that sell for millions, but rather about all new developments across London. The real estate agency who put it together have a bias towards foreign investors, so it might be somewhat skewed.

There's more in the video embedded in the page, and a link in the comments to an article at a Singapore property website.

Note that the graph of London prices in the video is denominated in dollars. For a UK resident, who's being paid in pounds, they've barely moved down in the last few years. In some cases they're up from the "peak" in 2007.

Two things strike me.

The first is that locals are being priced out of the London market. Anecdotally, I know of a number of people on decent incomes (IT contractors, estate agents), who are unable to move out of a two bedroom apartment or house and into a bigger, family home. There seems to be an exodus into the commuter belt.

The second is that if the UK gets into trouble, the pound picks up strength, or there's a financial crisis in Southeast Asia then the situation could have a very sharp turnaround.

I don't know what the situation is like in Australia, but there was an article about a Bondi development in the SMH suggesting that cashed-up Asians, the same group who're buying up London, bought up a significant chunk of the apartments. I'd be interested in seeing figures. But if they are present in large numbers then it could constitute a risk, particularly to OTP developments, if the wind changes.
 
There's a report on the London market here.

http://www.futureoflondon.org.uk/fu...nloads/2012/07/120724LondonforSaleFINAL-2.pdf

It pegs foreign investment as being lower than Jones Lang LaSalle (who supplied the data cited in my previous post), at 60%.

What's striking is that the housing market is deeply dysfunctional here in the London. Both buying and renting are becoming increasingly unaffordable, and there don't seem to be any solutions.

But bearing in mind that the UK's budget deficit is worse than Greece's, and is getting a free pass, I can't help but feel that we're possibly a financial crisis away from a massive bubble blowing out.

Lastly, the median income in Kensington and Chelsea, the epicentre of the super-prime postcodes, is £39K, and the median property price is £1.25 million, making the multiple 31 times. :eek:
 
Graemsay said:
Lastly, the median income in Kensington and Chelsea, the epicentre of the super-prime postcodes, is £39K, and the median property price is £1.25 million, making the multiple 31 times. :eek:
Click to expand...

the 39k is probably the interest they earn off their spending account in the UK, the other millions is channelled thru a BVI Co
 
More likely the foreign buyer will be a non-domiciled resident, in which case they have to pay a fee of £30K per annum, and then all income from sources outside the UK in untaxed. :eek:

The charge was brought in during the last government. Before then a non-dom wouldn't pay anything at all.

Or they'll just use the property for a few weeks a year, and not fall into the UK tax system.
 
Graemsay said:
More likely the foreign buyer will be a non-domiciled resident, in which case they have to pay a fee of £30K per annum, and then all income from sources outside the UK in untaxed. :eek:

The charge was brought in during the last government. Before then a non-dom wouldn't pay anything at all.
Click to expand...

WTF really ?
There goes the greatest tax haven in Europe (the UK). Those tax free offshore earning for non-doms were great, guess it couldn't last in the current environment.
 
joeExpat said:
WTF really ?
There goes the greatest tax haven in Europe (the UK). Those tax free offshore earning for non-doms were great, guess it couldn't last in the current environment.
Click to expand...

yeh it was great.... and stuff all costs to incorporate and administer. even the earnings that got pinged were taxed pretty favourably.

fingers crossed the pound keeps heading south and the UK property market has a decent correction... I'd like to buy in. the kids can use it later on too - beats sleeping on the laundry floor of a doss house
 
The £30K fee is peanuts to millionaires, and probably not a deterrent, but will stop those on less than a six figure salary trying it on. There was a massive PR campaign against it when it was proposed, but, personally, I'd like all residents to be treated the same.

I think that the UK market is due a correction, particularly in London and the south-east. But a combination of near zero interest rates, quantitative easing and foreign investment, particularly at the top end have propped things up.

Exchange rates seem pretty stable at present. I don't expect the Pound to fall substantially unless there's another financial crisis.
 
The link refers to Soros and Black Wednesday. At the time the Pound was in the ERM, and the markets had deemed the exchange rate to be too high.

Soros and others in the fund industry saw an opportunity, and took short positions that the Bank of England attempted to defend against. The net result was Britain crashed out of the ERM and never rejoined.

At present the Pound is relatively weak, and not bound by any exchange rate controls. I don't think that the government would act in the same way if the markets made a concentrated attack on it. More likely funds would be targeting Switzerland's 1.20 Franc to the Euro floor.
 
Found a piece earlier that Naomi Heaton, chief executive of London Central Property, who reckons that super prime London isn't in a bubble, and that the 8% to 9% growth rate is sustainable. Her basic argument is that it's being driven by foreign millionaires, and that there's a limited number of properties for them.

http://www.architectsjournal.co.uk/...-bubble-is-not-about-to-burst/8634593.article

However, Reuters has a report that billionaire interest in London is waning. Proposed changes to the tax system, including possible wealth taxes or levying capital gains on overseas purchasers, mean that there is uncertainty.

http://uk.reuters.com/article/2012/10/05/uk-london-property-superprime-idUKBRE8931PW20121005

That said, gold has outperformed prime London for the last few years. :D

http://www.telegraph.co.uk/finance/...outperforms-London-mansions-Knight-Frank.html

(I remain bearish on both gold and superprime London property. And will probably be proven wrong on both. :D)
 
An interesting comment on London from the FT (behind a paywall).

Using the example of an average-priced five-bedroom house in the west London borough of Hammersmith and Fulham, Savills, the property consultancy, has revealed the extent of the divergence. Worth £2.5m today, such a house is equivalent in value to a portfolio of eight regional properties, consisting of three two-bedroom flats in the centre of Manchester, two one-bedroom flats in the centre of Nottingham, a five-bedroom family house in Guildford and a four-bedroom holiday home in Devon.

In 2007, at the start of the global financial crisis, the same London house was worth £2.2m and could have been traded in for the equivalent of half that number of regional properties.
Click to expand...

The FT is probably wrong on subdividing the country into inside and outside of the M25. (The orbital motorway that encircles London.) There are pockets that remain extremely expensive in the regions. My brother's complaining that houses in the Lake District have prices closer to those in the capital than other rural areas.
 
I found this report on the London market today.

http://www.smith-institute.org.uk/file/London for Sale.pdf

It puts foreign investment into residential property at £5.2 billion ($8.1 billion) in London alone. That's more than the government is looking at spending on affordable housing over the next four years. And then there's this:

Over 60% of new homes in central London are currently being bought by overseas investors. Anecdotal reports suggest that a high proportion are kept empty.

That said, there's a high level of international interest in Australian property, as discussed in this article.

http://smh.domain.com.au/real-estate-news/property-tops-mining-for-foreign-cash-20121221-2bqbb.html

The real estate sector has replaced mining as the magnet for foreign money for the first time in recent history. Treasury gave a tick to $59.1 billion worth of overseas investment into the property sector, with more than two-thirds of that going into commercial property.

There has been an influx of foreign cash into commercial property led by Asian investors and offshore pension funds. Interest in the residential sector decreased slightly from $20.9 billion in 2010-11 to $19.7 billion in 2011-12. NSW is the favourite investment destination for overseas real estate investors, followed by Victoria and Queensland.

The London market is being grossly distorted by foreign capital, but the numbers coming into Australia as a whole aren't far behind on a per capita basis. I wonder how much is going on buy-and-hold versus new build?
 
Although announced today in the Halifax's Annual Survey London house price rises for 2012 were beated by :

No.1 Southend +14% in 2012
No.2 Basingstoke / Winchester +12% in 2012.
(We sourced 16 properties for clients in Winchester last year and they are all enjoying an excellent increase in the last 12 months
 
Richard, I've heard a lot of anecdotes about people in their thirties and early forties moving out of London when children arrive because they can't afford a family home. (And the sort of thing I'm talking about is a 110 m2 terraced house in a decent suburb, not the proverbial Chelsea mansion.)

I suspect that the price rises you're seeing in Southend and Winchester are a ripple effect by those displaced from the capital.

Rises of 12% to 14% during a recession when mortgages are still hard to come by is a really surprising result.

There was recently a comment from one of Boris Johnson's (mayor of London) advisers that he was surprised that young people weren't rioting in the streets over accommodation costs. So I suspect at some point something will have to be done, but that'll be tempered by the government wanting to keep property prices high, as MPs have tended to do well out of it.
 
£600 million ($900 million) worth of property sold in the Battersea Powerstation development in four days. :eek:

http://www.standard.co.uk/news/lond...-as-600m-flats-sold-in-four-days-8450783.html

Sounds like a lot of it went to overseas owners. I'm starting to think that given the massive housing shortage in London, and anecdotes about a significant proportion been bought as "buy to leave" in the hope of capital gains, that something like the FIRB would make a lot of sense.

Ain't going to happen though. The British establishment is too much in love with unrestricted movement of capital and investment to allow it.
 
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