Monday, 15 July 2013

Priced Out; 40% of all London property sales are going to South East Asia Investors.

Is London really in a property bubble?

Monday, July 15, 2013

Published by WARREN LEWIS

Is London really in a property bubble?
Average prices in Prime London Central (PLC) have risen significantly over the last six years to stand 34% higher than pre-credit crunch levels, according to HM Land Registry monthly house price data analysed by London Central Portfolio
This compares with England and Wales where prices are still 12% below their peak. Whilst this inevitably sparks debate over whether PLC is experiencing a property ‘bubble’, LCP sees the other side of the coin. 

Firstly, this price growth includes a strong bounce-back following the fall in prices during the credit crunch. This means that prices over the six year period are actually in-line with long term trends, which show average price growth of 9% per annum. 

Secondly, for overseas investors, who are reported to make up at least 60% of the total buying population, property in London’s best addresses actually looks ‘cheap’.

Investors from South East Asia, who comprise the largest proportion of LCP’s buyers at 40%, have profited the most from a weakening sterling. For buyers in Hong Kong and Singapore, currency adjusted property prices have actually fallen, dropping by 10% and 12% respectively since their 2007 high. In Malaysia, where the Ringgit has strengthened significantly over the last six years, the price drop was also 10% and in Thailand, prices saw a marginal growth of 3% over the same period.

Investors from the Middle East, where the currency is pegged to the US dollar, have also felt the benefit of sterling’s decline. When exchange rates are taken into account, prices for these buyers’ stand just 6% higher than the peak of the market prior to the credit crunch.

London is a financial centre, a ‘go-to’ destination, a pinnacle of culture and an educational hot-spot. Importantly, during the credit crunch with the upsets in the Eurozone and the Arab Spring, London Central’s safe haven status has pushed it even further to the fore. It is no surprise then, that the resultant effect of the low cost of sterling, coupled with cheap debt has stimulated an influx of foreign buyers into PLC. 

Moreover, the appointment of Mark Carney as the new Governor of the Bank of England has brought further good news for potential PLC investors. Interest rates remained static at 0.5% for the 53rd consecutive month as the MPC maintained the status-quo and indicated that there was little expectation of change before 2016. This saw the pound drop even further (by over 1%). 

Naomi Heaton, CEO of London Central Portfolio has this to say:

“Whilst it may sound absurd, property prices in PLC look particularly good value for international investors as prices in their home markets rise substantially and sterling remains so weak. For Singaporean investors, for example, the average PLC property cost S$2,003,276 in October 2007 but costs S$1,718,044 today. So, not only does PLC residential provide excellent prospects of capital growth, given that strong demand consistently outstrips supply, it looks excellent value for money for overseas buyers” 
People Before profit are calling for a Ban on Overseas investors at this scale, it sees the profits paid going to overseas property investment companies with no UK benefit, it is pushing up prices and robbing London workers of the chance of a home, whilst at the same time pushing up the rental market pricing people out. It has to be regulated and this will play a big part in people before Profit Local election campaigns in 2014.

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