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Does London’s investment future lie in foreign hands?

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Does London’s investment future lie in foreign hands?

By - Friday 11 November 2011

Ever since the UK housing market crashed and the value of the pound plummeted, wealthy buyers from around the world have been seizing the opportunity to buy up prime real estate assets in our prestigious capital at a synch. Very few people are putting a figure on just how many foreign buyers there are in relation to Brits, but at the end of 2010 Savills put it at 50% a piece. At the same time Ed Mead, director of Douglas & Gordon was quoted as saying:

"Within that time I've seen the market switch from being 20 per cent foreign buyers and 80 per cent domestic to the exact opposite."

At the time (September 2010) Mead also rejoiced at the company having one of the best periods in its 51 years of operation, and put this down to weak supply in the capital. "When foreigners buy London property, they tend to keep it for a generation. British buyers tend to sell it and trade up within three to four years. So you've got a lot of properties that once sold, don't appear again for a very long time" he said. "The market's disappearing up its own backside."

In an article in Property Wire at the end of last month Savills reportedly put foreign buyers at 58% of all prime London property purchases. According to the same article, this foreign demand continues to drive up property prices in the capital, with growth of 13.6% in the past year.

It's not just residential property either, London's growing reputation as an investment safe-haven amidst the economic volatility of Europe also pushed up global investment in commercial property in the city as well. However, this died away as Germany became more and more popular around 6-9 months ago. With Italy now looking likely to be the next in need of a bailout (Europe's third biggest economy) making it more likely that Spain will follow suit and damage the status of Germany as an investment safe-haven.

Of course, one would expect to see a surge in foreign demand for London property right now, not only because of the price drop seen in the early crash, or the weak pound, or even because prime London property is seen as a safe-haven, if all that weren't enough you have the fact that London is hosting the Olympic games next year.

This presents a whole range of investment opportunities. Opportunities to make a great deal of money renting property out to Olympic goers, and opportunities to invest in new developments as the city is readied for hosting an event of such magnitude.

This is all well and good now, when London property prices are growing against a backdrop of falls and stagnation across the rest of the country, but aren't we worried about the possible long-term consequences?

On the commercial side we potentially have  a spike in foreign companies operating out of London, which will be a hampering factor on many industries, potentially including retail, exports, and the services sector.

On the residential side we are looking at it being potentially very difficult for Brits to once again become the main buyers of property.

This possibility takes on a new level of urgency when you bring in the reports from a series of buying agents quoted in the UK nationals over the past few months. According to those agents, who had seen the increase in foreign demand, the foreigners were buying in pockets of their nationality; i.e. there were areas that were popular with Chinese buyers, areas where eastern Europeans where buying and areas where Russians were buying.

In these areas, which were not small or few by any means, Brits will in future find it very hard to buy back any of these properties, because their owners will want to keep the nationalist camaraderie.

But, will they though? On the flip-side it is equally likely that these owners, like the owners of practically every property in the world, will sell to the highest bidder. According to Savills 20% of buyers in London over the past year have been buying for investment, and under half were buying a main residence. With the dominance of foreigners within that, we can assume a high percentage of foreign buyers were buying for investment. With this in mind it becomes even more likely that fetching the highest price will be the main factor when it comes time to sell.

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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.

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