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The World in London 

In her book, “The Global City”, Saskia Sassen argued that large, technologically advanced urban areas defined the modern world. She identified Tokyo, London and New York as the three cities that propelled the world economy. [1] London is popularly perceived as a global city and is undergoing an urban renaissance with is growing cosmopolitan population. (42% of inner London residents were born abroad) [2] In common with world cities, London has seen intense urbanisation. Its population has now surpassed the previous record of 8.6 million people in 1939. [3] Couple this with the city’s notable under-supply of housing real estate along with other global socio-economic and political factors; it is not surprising house prices in London have increased by a whopping 258% in the last decade. [4]

With such capital appreciation; it is also said, ever since London has cemented a reputation of a “safe-haven” during the Lehman Brothers collapse in 2008 and other recent periods of political instability around the world, means there are today more reasons people buy a home in London than there are stops on the tube map. [5] The global economic and political turbulence evident since the start of the financial crisis has created a new impetus for cross-border investment in prime property assets around the world. The movement of capital into residential property is most notable when looking at key global cities, with overseas investors keen for a slice of premium real estate in locations offering more than just excellent investment opportunities, such as lifestyle and education. While international interest in London property is not a new phenomenon, the economic and financial changes since 2007 have
created a fresh model for overseas investment in new-build property.

There has long been a trend for overseas buyers to purchase homes or investment properties in central London. In the 1980s, Americans dominated the international market, as did those from the Middle East. Over the last decade or so, Russians and Asian buyers have become more active. The Eurozone crisis has only boosted interest in London bricks and mortar among Europeans - there was a sharp rise in buyers from West Europe in the late 2011 and 2012 as investors looked for ways to diversify away from Euro-denominated assets. A weaker pound served to make the opportunity even more sweet. Buyers from Asia have also risen in prominence in recent years; the pound comes into play here too, as Asian buyers benefit from an effective discount on London property. In addition, the new-build developments around central London appeal to buyers who are comfortable buying off-plan. [6]

In 2014, Prime London property outperformed other investment asset classes despite the backdrop of global economic uncertainty. [7] London will remain to attract international attention, given that it is such a multi-national city which boasts a transparent legal framework, advanced financial services, high standards of education, stable governance and favourable currency gains for foreign investors to park their money for growth. As the planning minister, Nick Boles accepted perception that London property is now being used by a global elite as a kind of global reserve currency in which to park their cash. [8]

The Foreign Legion

Market fundamentals - who is buying? and market dynamics - where is the wealth coming from?

In the central London property market, UK buyers accounted for the majority of property purchases across the prime market in London in 2012, with 58% of homes being bought by domestic purchasers. Europeans accounted for 13% of sales during the year, while one in ten sales were to Asian buyers. Nearly 5% of sales were to Russian purchasers. But when we focus solely on new-build sales, rather than sales of all new and older stock, the picture changes quite significantly.

UK buyers remain the largest segment, accounting for 27% of transactions Buyers from Singapore and Hong Kong were integral to the market in 2012, with 23% and 16% share respectively. While the Chinese and Malaysians followed suit with 5% and 4% of the market share. Overseas buyers purchased new-build property in London worth some £ 2.2 billion in 2012 according to Knight Frank analysis. [6] For many overseas buyers, new schemes offer a convenient, low maintenance investment, typically on long leases or freehold. They can be easily managed from abroad and rental income covers costs. This trend of off-plan purchases and forward funding of projects has had an important impact on the market in London, allowing developers to secure funding to develop in a housing market largely starved of development finance. This has resulted in London’s construction levels holding up relatively well compared to the rest of the country in the wake of the financial crisis and housing shortages, although there is still a significant under-supply of new housing in the capital. Studies have also shown that most of these overseas investors purchase property in London mainly for buy-to-rent investment purposes than as second homes. [9] Thus, ‘Lights Out London’ would seem to be a myth in all but a handful of locations. To caricature all overseas purchasers as absentees ‘buy-to-leave’ landlords is laughably wrong here.

Detractors of foreign investment activity, often raise their concerns and are not shy to voice their demands and protest. This is evident during the previous MIPIM show in London.[8] They argue that, there is reduced choice of accommodation available for owner occupiers; exposing the housing market could lead to market volatility due to speculations; new homes are priced beyond means of first time buyers in London and investors buy homes simply as ‘cash-dumps’ leaving them empty. However, there is always two sides to the coin in every matter and one cannot simply point the finger without understanding that foreign investment has its benefits too and is one of the main drivers of London’s economy and inward development projects like housing and infrastructure. The London housing problem is a far more complex issue that needs demand and supply solutions based on real evidence, not misguided notions and at worst that border on xenophobia.

Future Markets

Emerging new world market money will continually find opportunity in “safe-have” old-world markets; and London will need to further equip herself to attract these capital flows or bear the risk of losing out to other competitor global cities around the world. Past lessons can teach London how to carefully tweak financial economic policies to curb the bubble-effect on the housing market to remain competitive and enable growth in the long-run and favourable to foreign direct investments.

The way in which the real estate industry’s major players work in relative secret societies comprising of oligarchs and government politicians have got people questioning is the government and developers if they are in fact in bed with investors from overseas; to make a quick buck. The new institutional structure to real estate will need to be transparent, less pretentious and an open trade exchange for it to be regulated.