Posted by: Jules Birch31/07/2012
As the Olympics gives a daily boost to London’s image as a global city, how long will it be before the government acts on overseas property ownership?
The evidence on the scale of the ‘investment’ and the impact on the rest of the London housing market is mounting steadily. In March, I blogged about a report from the IPPR arguing that London property has become a sort of global reserve currency for the wealthy elite and warned about the effect on housing across the capital as billionaires price out millionaires and the effect works right down the system to priced-out first-time buyers, ripped-off private renters and forced-out housing benefit claimants.
A report from the Smith Institute last week concluded that over 60 per cent of new homes in central London are currently being bought by overseas investors and that a large proportion of them are being kept empty. And it warned that the growth in overseas investment (mainly from the Far East) is set to continue despite the new 7 per cent stamp duty rate on property over £2 million and levy on property bought through companies. That brings with it a real risk of a new house price bubble and of a further fall in home ownership in the capital (it is already down to 52.5 per cent).
The sums of money involved are colossal. The IPPR estimated that the amount of foreign capital flowing into prime London property rose 72 per cent to £5.2 billion in 2011. The Smith Institute points out that this is five times more than the annual investment in affordable homes in London and a third of all loans made for house purchases.
Money like that is impossible for developers to ignore. Take the huge Nine Elms regeneration plan between Battersea Park and Lambeth Bridge. As the Financial Times reported yesterday, it’s a chance of a new South Bank a stone’s throw from some of most expensive property markets in London.
One developer, Ballymore Group, plans 2,000 homes by 2015 and is already selling in south-east Asia with 260 out of 314 properties it will only start building next month already pre-sold. Another, St George South London, feels the need to point out that Asian purchasers are often buying not just for investment reasons but in many cases to house their children who are studying in London. ‘There’s not a lot of liquidity in this part of the world but international money is prepared to invest in the area,’ managing director Mark Griffiths told the FT. ‘It’s not just south-east Asia. When you get to £3m-plus properties you’re looking at Russia and the Middle East.’
From the point of view of a developer, it’s all perfectly understandable. You market your ‘units’ where the money is and pre-selling them takes the risk out of building them. However, from the point of view of London and the country as a whole, it means that provision of new homes is even more inadequate to meet levels of domestic demand than the headline figures suggest and that house prices and rents will continue to increase beyond the means of local incomes. At Nine Elms, Lambeth is pushing for 40 per cent affordable housing and Wandsworth 15 per cent – but what about the rest? Should they also be worrying about the percentage of local buyers - or even how many of the homes will actually be occupied?
Figures from Hometrack yesterday suggest that the London market is starting to cool at last but a survey of prime property in 27 global cities by Knight Frank revealed that London came fifth with a 10.5 per cent increase in prices in the year to June thanks to its reputation as a safe haven for investment.
Knight Frank says that the prospects for the rest of the year are ‘muted’ thanks to the Eurozone crisis and ‘protectionist’ measures in Asia-Pacific. Governments across the region have moved to cool down their property markets, with controls on lending, new taxes and restrictions on second-home ownership and foreign buyers. According to its Asia-Pacific Residential Review in December 2011, Singapore introduced an additional buyer’s stamp duty of 10 per cent for foreigners. From May 2012, Australia removed the 50 per cent capital gains tax discount for non-residents (foreign buyers have been restricted to new build properties only since 2010). The new chief executive in Hong Kong wants to restrict purchases of certain classes of new housing development to residents. In Malaysia, the government could double the minimum price of properties that foreigners can buy from RM500K (around £100,000) to RM1 million.
The measures seem to be working so far too. In Singapore the number of units sold to foreign (non-permanent resident) buyers fell 76 per cent between the fourth quarter of 2011 and the first quarter of 2012. Knight Frank concludes that ‘continued intervention across Asia-Pacific to cool markets, reduce speculation or limit foreign buyers will continue to be an important factor in the region’s property markets’. Asian governments are acting to take control of their housing markets while Asian buyers enjoy unrestricted access to ours.
The property firm comments that: ‘Most of these measures and sentiment comes as a popular backlash from domestic buyers who feel priced out of their birth right by foreign buyers. This swing towards populism underlines how property booms have impacted affordability, especially for first time domestic buyers.’ How long before there is a similar backlash here? ‘Protectionism’ is seen as a bad thing because it restricts free trade but we are talking about a limited supply of homes not an export good where production can be increased to meet demand.
The Olympics is providing a daily reminder of the attractions of London and ministers are pulling out all the stops to attract overseas investment. After a wonderful opening ceremony that celebrated London’s diversity and enthused everyone apart from the odd Tory MP, this is emphatically not a call for the restoration of a xenophobic Little England but how much of that ‘investment’ will merely add to domestic demand for a stock of homes that is already inadequate? And is that ‘investment’ at all?
From Inside edge
Housing commentator Jules Birch puts the latest news in context