Foreign investors could push another wave of money into London property to avoid China’s tumultuous stock markets.
Prime real estate in London could receive another boost from foreign investors escaping the tumultuous Chinese stock market.
Although the prime central London property market slowed following stamp duty reform which significantly increased the amount of property tax on homes over £1 million, the most expensive property is set to grow in value again.
Figures from estate agent Savills showed that while property prices in the capital increased 2.3% over the last year, the prime market has been broadly flat. Properties priced at over £5 million have seen falls of 4.7% over the last 12 months, while stamp duty has increased 4.1%.
However, the slowdown in the prime market isn’t expected to continue and Savills predicts that over the next five years prices will rise 20.4% – compared to 15.3% for mainstream London property and 17% for UK mainstream property.
Part of this boost could come down to renewed interest from Asian buyers who have been spooked after the bubble burst in the Chinese stock marketearlier this year, causing shockwaves to ripple through other markets.
Yolande Barnes, director of world research at Savills, said it was more likely that the Chinese crash would encourage investors into the safe haven of London real estate and said her colleagues in Singapore had been seeing ‘more interest in real estate because people do not like the stock market there’.
Barnes argued restrictions placed on investors in the Chinese stock market were leading many in the country to view property as more attractive, but noted it was difficult to get the money out of the country.
Although she said they would ‘come to London over other places’ the prime market in which Chinese investors were like to buy was ‘fully valued’ and they were increasingly looking at the US and Australia.
While an influx of money is good news for house builders developing luxury apartments, there has been criticism that foreign investors are pushing up house prices for Londoners and pricing them out of their own city.
Barnes said this rhetoric was ‘verging on xenophobic’ and that foreign investors were purchasing property that most people would not be able to buy anyway.
‘In internationally investable cities like Hong Kong, London, Paris and Dubai, the prime market prices at a higher multiple than mainstream property,’ she said, adding that the prime property market made up just 5% of the greater London residential market.
Barnes dismissed the argument that stopping foreign investment in London property would force developers to build more affordable property, and said it would in fact have a detrimental impact on social housing in the capital.
‘I can’t predict [whether there will be a clampdown on foreign buyers] and who knows if there is enough of an outcry because people believe they are being priced out by foreign buyers [it may happen],’ she said. ‘[Stopping foreign investment] could be very damaging because…it would take a lot of pre-sales out of the new build market at the luxury end.
‘People say [the developers] would get funded differently and build for the mainstream market but instead [new developments] would not get built and there is a danger there because 20% or 30% of the units in those builds are social housing units, whether they are built on site or elsewhere. That means we would end up with few social housing units.’
Ray Boulger, mortgage and property expert at broker John Charcol, agreed that most of the property being bought by foreign investors ‘was not the type of property your average first-time buyer would buy anyway’.
He said the real problem for buyers was supply and demand and the government’s aim to build 200,000 homes by 2020 was ‘pie in the sky’.
Although the government has announced a new raft of building through its ‘starter homes initiative’, Boulger said house builders found it difficult to increase their output significantly.
‘Developers can only increase the number of properties by a reasonably modest amount due to the increased need for materials and labour – they only increase by about 10% to 15% at a time,’ he said.