The London housing market has long been an attractive prospect for property investors, particularly those from outside the UK.
However, it has not always been the case that the market is so reliant on these sources of finance. Without foreign investment, things would look very different.
As Hopwood House states: “If the many and complicated dynamics behind London property right now were boiled down to a single driving force, that force would probably be investment coming into the UK capital from overseas.”1
Wealthy foreign investors have often been accused of driving up property prices in London, but the reality is much more complex.
In fact, a lot of investment is helping with the housing shortage. Billions of pounds are being poured into construction projects2, building thousands of modular homes for British citizens.
Who is Investing in London Property?
The British public’s vote to leave the European Union has caused uncertainty amongst EU investors, who aren’t quite as excited about the London property market as they were before.
But there are still plenty of investors from other parts of the world that are keen on staking a claim in the UK capital.
In 2016, 55 percent of real estate investment in Mayfair was made by individuals from India, Russia, the Middle East or Africa3.
Ollie McAninch, economist for The London Economic, claims there has been a surge in investment from East Asia since the EU referendum4.
To further back up that claim, he states there has been a surge in investment from China since the vote – that is, investors from both Hong Kong and the mainland.
Why are they Investing in London Property?
In the case of Chinese investors, there are a variety of different reasons as to why the UK has become an attractive prospect.
One is that the EU vote has led to more favourable exchange rates, which means property prices are cheaper than they were before. Investors want to get in now, as there is no way of telling how long this will last.
Shan Liew, journalist for the theCsuite claims the exchange rate went from £1 = 15.16 Chinese Yuan in 2006, to £1 = 8.62 Chinese Yuan ten years later – meaning investing is almost half the cost of what it used to be5.
Another reason is that interest and mortgage rates are currently quite low, with the Bank of England Base Rate reduced to a historic low of 0.25 percent in December 2016.
London property investments are also seen as a way of preserving ones wealth. The UK’s capital has repeatedly proven itself to be resilient, even against the harshest of recessions.
So investors feel that a medium or long-term investment plan is solid.
Will London Continue to be a Property Hotspot for Foreign Investors?
Foreign investors, particularly those from China, have been ramping up their investments in London for over a decade – and that has only enhanced since Brexit.
As evidence, Shan Liew also states that foreign investment in the UK as a whole was at £595 million in 2007, and reached £4 billion in 20155.
So it’s difficult to see this trend declining any time soon.
However, because there are accusations about rising housing costs being (in part) down to foreign property ownership, there could be some opposition to the trend.
London Mayor Sadiq Khan, for example, has pledged to launch an investigation into foreign investment in the housing market, citing concerns about gentrification as well as property costs.
He told the Guardian: “It’s clear we need to better understand the different roles that overseas money plays in London’s housing market, the scale of what’s going on, and what action we can take to support development and help Londoners find a home.”6
So, depending on the outcome of that investigation, the outlook of the housing market could look very different.
Whatever happens, we’ll keep you updated with the latest developments here at Cogress. If you have any questions about property investment, we’ll be happy to help.