Despite the fact that the Bank of England and various experts have been in denial with regards to the ever growing cost of property in London, the Ernst & Young Item Club has called for measures to rein in the impact which oversees buys are having in the capital. Wealthy buyers seem intent on acquiring luxury London property at “any price” which is causing extreme pressure on prices.
It seems that the Bank of England is now well aware of the situation, despite trying to play down prospect of a London house price bubble, although what measures it will take in the short to medium term remains to be seen.
Problems for the Bank of England
One of the main problems seems to be that while the luxury London property market is going from strength to strength, the rest of the UK is not moving in tandem. We have seen an increase in interest in property outside of London, but this has been nowhere near the degree seen in the luxury London property sector. So in essence, we have two property markets, the London property market and the non-London property market, moving at very different speeds.
Quote from PropertyForum.com : “As the UK property market continues to push higher, there is no doubt that a shortage of affordable property is having an impact on prices.”
The influential Ernst & Young Item Club is forecasting a rise in general UK real estate prices of around 8.4% in 2014, 7.3% in 2015 and 5.5% the year after. The situation in London is even more buoyant, with prices rising by 11% during 2013 and set to increase yet further in 2014. So what can the Bank of England do to reduce the influence of overseas buyers in the London property market?
The tax situation with regards to overseas real estate investors in London is very different to that enjoyed by domestic investors. There are growing calls for new taxes to be brought forward to reduce the imbalance in taxation between domestic buyers and overseas buyers, with particular emphasis upon the London market. This has become something of a political hot potato because in essence it is seen as a tax on the rich at a time when those who “have broader shoulders” are already being asked to stump up more money to rebalance the UK government’s budget.
There is also the potential that a new tax, to reduce the on-going interest international buyers continue to show in London, could have a detrimental impact in the longer term. It will be interesting to see how the UK government, Bank of England and other fiscal bodies read the UK property market going forward.
It will come as no surprise to those who follow the London property market to see that the influential Ernst & Young Item Club has gone public with its belief that the London property market is showing signs of a house price bubble. Whether or not official bodies such as the Bank of England have been playing down such movement over the last few months is debatable but demand for specific taxes aimed at overseas investors continues to grow.
What will the Bank of England do to control what is effectively a two-tier market, the London property market and the non-London property market?