There’s not much that can be said about London property that hasn’t been said again and again and again over the last few years. It’s a safe haven, the pound is favourable against most currencies right now, it’s a clearly defined, transparent industry in a cultural, political and financial capital, educational institutions are among the best in the world and rental yields as well as capital appreciation equally strong. There’s not much there that can be beat.
London is also an island. Prime central London prices — and admittedly demand for property — and those of other parts of the United Kingdom sit on opposite sides of a great divide. On average and across the board, UK prices are down 9 percent from 2007, while London prices are 5 percent above their peak that same year. “For prices in the capital to be 5 percent above their 2007 peak is nothing short of incredible. The London property market is an extraordinary microcosm. It has effectively broken free of the rest of the UK and is operating in its own stratosphere,” property agency Garrington’s Jonathan Hopper told the BBC in June.
Foreign demand is fuelling London’s price gains, and currently 50 percent of London real estate — particularly in high demand areas such as Chelsea, Westminster, Fulham and Hammersmith — is in the hands of overseas owners. Despite teetering on what many believe is another recession, London remains relatively insulated from a major dip in its market and the data seems to back that up. Statistics from Global Property Guide have average home prices in the Northwest (which includes Liverpool) off nearly 5 percent between 2011 and 2012. East and West Midlands (Nottingham and Birmingham) were both down 4.9 percent, Wales was off 5.6 percent, and Northern Ireland was down over 7 percent. Even Greater London suffered, losing an average of 4.2 percent. It doesn’t help that lending in the UK is relatively strict these days, which sends developers overseas seeking investors. Investors see all that is good in London and snap up flats in new builds and regeneration projects alike. Rinse and repeat.
“London’s internationalisation and population growth applies to all classes in central and outer London but overseas investment and second home buying particularly affects prime markets, central areas and new homes,” admitted Savills in its 2013 The World in London report. “These markets are highly visible and widely commented on as well as showing the highest house price growth early in the property cycle. This has prompted many press reports to suggest that London’s housing markets are being overrun by the globe’s super-rich.” And that London has no Londoners. And so on with the negative spin.
Out of Reach?
Not so argues Savills, and Global Property Guide would seem to agree, noting that average home prices in Greater London right now are sitting at approximately ￡270,000 — or HK$3.2 million. It doesn’t take a research committee to point out purchasers are likely to get a great deal more value (or at least space) for the same money in London than they would in Hong Kong. London’s fundamentals make it a decent mid-range investment as well.
Immigration into London is expected to grow in the city by one million over the next decade. Contrary to popular belief, or panic, overseas purchasers don’t exceed the numbers they did in the 1980s and ’90s, but the area considered “central” London has spread. UK buyers are decreasing due to a number of factors that include falling incomes and recession in addition to tough financing, and so overseas buyers are simply picking up the slack. London’s rental market is robust.
Resident foreign nationals are included in the overseas buyer category, though in real terms they are local end-users. “Thirty-five percent of all Londoners, not just those buying prime property, were born overseas. House purchase by international buyers has more to do with residency than anything else,” Savills points out. The majority of international buyers in London have business in the city, a fact that dovetails with London’s world city status.
Broken down by region, Western European and Scandinavian purchasers are the biggest investors in London and represent 13.6 percent of the market according to Savills’ research. But if Hong Kong and China are included with Asia-Pacific the region jumps into the lead with 13.8 percent and leaps to 17.2 if Southeast Asia is counted. Ironically, it is these foreign buyers that are underpinning a great deal of the city’s regeneration. With demand for housing so high, the city has had to get creative with its planning. Developers seek presales overseas — Asia being crucial to that — for funding projects. The end result is previously abandoned districts are finding new life and broadening the concept of what “prime” London is.
“Some of this new development and regeneration has only been possible in recent years because international buyers, many of them from Asia, have effectively funded new schemes by buying units offplan, in advance of completion,” finishes Savills. Which is hardly a vicious circle.