Sadiq Khan, the recently appointed Mayor of London, has today announced an investigation into foreign property ownership across London. Amid concerns that foreign investment is pushing London house prices far beyond the reach of first-time buyers this investigation is promised to be the most thorough and wide reaching ever undertaken”. So, what is this investigation likely to unearth and what impact will this have upon the London property market in the future?
London property prices
London property prices are by far and away the most expensive in the UK and in real life the London property market performs very differently to the rest of the UK. This is a phenomenon which has been ongoing for many years and the ever-growing number of foreign investors looking towards London as some kind of “safe haven” does seem to have increased in recent times. While there is no doubt that the cost of London property has risen as a consequence of foreign investment this is not the only reason.
It is very easy to forget that London houses some of the most lucrative financial companies in the world within the so-called “Square Mile”. The kind of income and bonuses some of these financial experts receive is mind blowing to the general public. If they live and work in London then it seems to make sense that they would acquire property in this area as well. The fact that London property has proven to be an extremely attractive investment in recent years should not be overlooked.
Is the result of this investigation already penned?
It seems highly likely that this investigation will find foreign investment plays a major role in the ever-increasing cost of London property. Many believe this is a witchhunt aimed at currying favour with London voters who have long been concerned about the ever-growing cost of property in the area. We have seen similar investigations in years gone by and indeed the current government and recent governments have also introduced an array of tax regulations aimed at reducing the immediate attractions to overseas investors.
How have these regulations faired?
You only need to look at the recent rise in London property prices, prior to the Brexit result, to see that foreign investors still consider London a good long-term investment opportunity. The recent reduction in London property prices, after the vote to leave the European Union, was expected and is in reality just a means of blowing the froth off the top of the market. The uncertainty in the short to medium-term might impact prices but even if the UK does eventually leave the European Union many experts still see London as a major real estate market.
Many people fail to realise that while the UK was a major element of the European Union it was not fully integrated and had not adopted the Euro. So while there may be short to medium-term concerns about a full-blown exit from the European Union it would be wrong to suggest that the UK was ever fully integrated. On that basis there are still long-term attractions for foreign investors with experts suggesting that Chinese middle class investors will be the next wave of foreign investors to “invade” London.
So, on that basis it is difficult to see exactly what the Mayor of London can do even if he finds foreign investment to have played a significant role in the London property market. Whatever happened to free market policies?