Each day seems to bring yet another “expert” opinion as to why the London property market has remained so buoyant. This week it was the National Crime Agency (NCA) which stepped into the limelight suggesting that criminals are pushing up the price of London property as they look to launder funds from their illegal activities.
While it would be wrong to suggest that money laundering is not an issue for the worldwide property market it is worth noting there are regulations in place to combat this type of fraud. Estimations that hundreds of billions of pounds a year are laundered through the London property and financial markets are fairly vague, without detailed statistics, although they do make good headlines!
Over the years we have seen a significant increase in money-laundering regulations as a means of combating the investment of proceeds from illegal activities. When the authorities moved the emphasis away from regulatory bodies and placed those dealing with investors in the firing line, this seemed to have an impact. There is no doubt it is more difficult today to launder money than it ever has been and, with paper trails evident right across the board, together with better communications between companies, public bodies and regulators.
The UK government in particular has been very proactive in the area of offshore companies which have been used to mask the underlying owners of various property assets. Indeed just a few days ago we saw the Chancellor of the Exchequer George Osborne introducing the latest of many tax changes which will impact inheritance tax on property going forward. It can be difficult to obtain the identity of the underlying owners when properties, and other assets, are acquired using complicated offshore company structures.
However, as the obligation to ensure that all funds are “clean” remains with the underlying adviser on particular transactions this should catch the majority of attempted money-laundering activities.
What is driving the London property market?
For many people this is the one million-dollar question, what actually is pushing the London property market further and further forward. There seem to be a number of factors supporting the London property market including a so-called safe haven status, tax incentives for overseas investors (although these are being reduced), the quality property and for many of the rich and famous, a property investment in London is a status symbol.
Despite the fact that many people look at the provincial UK property market and the London property market together, they are in effect two very different beasts. Even though the London property market and those outside of the capital tend to move in the same direction, their underlying performance figures can vary wildly.
Hand on heart it would be impossible to say that no property market around the world is impacted by money-laundering and funds from illegal activities. However, claims that criminal proceeds are “skewing” the performance of the London property market is maybe a step too far. This is a market which has earned the UK government hundreds of millions of pounds of additional income with recent tax changes. It is also worth noting that money-laundering regulations continue to tighten although the matter of offshore companies being used as investment vehicles is one of the more difficult problems to solve.