The FT’s Alphaville Blog carries an interesting article today, London as a cheapo Hong Kong. The piece analyses a report by Deutsche Bank that notes while Central London prime property prices are rapidly gaining value the rate of return on all UK property over the last 5 years still remains over 9%.
Yet the most telling paragraph taken from the Deutsche Bank report is this:
For those from China and Singapore London house prices remain less than 60% of peak, for Malaysian, Hong Kong and US$ investor’s less than 70%. This also compares to house prices in some of the investors home territories which [have] shown massive increases, eg through 2010 house prices in Hong Kong increased by 50% impacting affordability and the ability of secure attractive income returns on properties. In some Asian countries in a bid to stem house prices tax regimes have been put in place. This has also pushed investors towards the UK…
As foreign investors now make up 73% of Central London new build property buyers and a staggering 90% of prime Central London property (£2,000+ per square foot), it’s clear they are the real driving force behind the current price boom. Worryingly, if the pound’s depreciation means that real estate in the capital is a mere 60-70% of peak prices (in 2007), this suggests that foreign buyers could drive property up another 30% before it regains parity with the previous peak.
London property is now an international asset, like the dollar or bonds. We need to deassetise property from an internationally traded commodity to an asset whose primary purpose is to fulfil a basic human right in line with Article 25 of the Universal Declaration of Human Rights. Unless we begin to intervene in the market, either by government intervention to build more properties, or by making these assets less attractive to foreign buyers with stricter taxes, there is no chance that any young person today will be able to afford to own their own property (unless they are fortunate enough to be in the top 1% of earners). Public anger is growing. Politicians now must act.
Update: interesting map from Savill’s residential research on the rise of the £500,000 flat across London.