Are overseas investors distorting the London property market?
Over the last few days it has become apparent that overseas investment in the London property market, especially London prime property market, is pushing values close to dangerous highs. We have seen billions upon billions of dollars pouring into the London property market from an array of investment funds and wealthy individuals around the world. A number of experts are now asking the question, should foreign investors be barred from the London property market?
The simple answer to this question is, this is not feasible and will never happen because the UK has always had a free-market policy with regard to investment. Indeed the fact that the vast majority of UK utility companies are owned by overseas parent companies perfectly reflects the very open policy and free-market transactions valued by the UK investment arena.
Why do overseas investors see more value than domestic investors?
On the surface it may look as though overseas investors see more value in London prime property than their UK counterparts. However, the reality is slightly different because UK investors are just a small part of the overall worldwide property market which is dominated by major players from the Far East, the USA and the likes of the United Arab Emirates.
It is the fact that we are seeing more and more money pouring into the market, taking yields down to as low as 2.75% on Bond Street properties, which is concerning many individuals. In a similar situation to that experienced by Australian investors, in light of the fact the Australian economy was one of the strongest in the world after the 2008 mortgage crisis, demand for “safe haven” investments often sees short-term valuations and investment measurements ignored.
Quote from PropertyForum.com : “The Church of England investment arm has been in the news of late amid concerns that the church may have inadvertently assisted in the flotation of payday loan company Wonga.com.”
Could we really be on the verge of a collapse?
In many ways comparing the London property market and the London economy to the rest of the UK is the first mistake which many of us make. London has its own micro-economy and its own micro-property market which attract billions of dollars of investment from overseas investors. It would be wrong to suggest that the London economy itself is booming but it is certainly in a better state than the UK economy as a whole, as is the property market.
It is moving towards a dangerous level when property yields are starting to challenge yields available a long-term government bonds which are guaranteed by the state and as secure as you could get. It is likely that we will see reality emerge in the short to medium term because the thought of a potential move in Bond Street property yields to the 1.75% world record low is alarming in itself. This may well turn out to be experts scaremongering about the London property market but it certainly does give investors food for thought.
Conclusion
One of the main attractions of the array of London investment markets which are world leaders, including prime property, is that they are very transparent free markets. The suggestion that foreign investors should be barred in order to protect the long-term future of the London prime property market is a nonstarter. The truth is that investment markets will find a level by themselves and there will come a point when the potential capital return and property yields just do not add up.