Wealthy foreigners distort housing market
Tue 17 Sep 2013
Wealthy foreigners have been accused of stoking an unaffordable house price bubble in London that is distorting the recovery in the housing market across the UK. Cash-rich, overseas investors are piling into properties in the capital worth 2m or more as a safe haven investment.
The trend first emerged during the darkest days of the eurozone crisis, as wealthy Greeks and Italians shifted their money abroad, and has been rekindled by unrest in the Middle East, according to independent real estate advisors Benthorp.
The influx of foreign investment helped drive London prices up by 9.7pc in the year to July three times the rate of inflation. Every other region in the UK suffered a real-terms drop in prices, as the annual rises fell short of Julys 2.8pc official inflation rate. However, the London effect pushed average prices across England to a new record high. Prices in England are now 0.9pc above their January 2008 pre-crisis peak, having finally recovered all the ground lost in the recession, according to figures from the Office for National Statistics (ONS). For the UK as a whole, though, prices are still 0.2pc short of their earlier record. Excluding London, they are down 4.8pc.
Harry Clifton, managing director at Benthorp, said: "Overseas investors into central London will continue to distort the local market, forcing prices up as they seek safe havens from recently volatile Middle East economies.
"Despite the steep prices for London properties by any absolute measure, cash rich overseas investors are still adding to collections of 2m to 5m second and third homes or adding to their portfolio of 10m plus property assets.
"For overseas investors they are driven by a global relativism the sharp percentage decline in sterling versus the dollar and the euro over the past year despite a recent rally in sterling has made expensive London property relatively affordable again."
According to property group Savills, prime central London prices have more than doubled since 2005, making London "a honeypot for wealthy real estate buyers". Peter Rollings, chief executive of estate agent Marsh & Parsons, added that an imbalance in supply and demand is pushing up central London prices faster than elsewhere.
"In the three months to June, we recorded 11pc more buyers entering the market in competition for 14pc fewer properties," he said.
The housing data may fuel concerns about the Governments Help-to-Buy subsidised mortgage scheme, which Business Secretary Vince Cable has warned could lead to an "old-fashioned property boom". Mr Cable has suggested barring the scheme in London, and senior Liberal Democrats are reported to be considering plans to lower the schemes 600,000 threshold, limiting its use in the capital, where the average house price is now 438,000.
George Osborne has rejected suggestions that Help-to-Buy will cause a bubble. Instead, the Treasury claims it will trigger a building boom that will prevent prices spiralling upwards. Housing minister Mark Prisk said yesterday: "New housing supply is at its highest level since 2008, with 334,000 new homes built in England over the past three years, including 150,000 affordable homes."
The ONS house price figures for the year to July revealed the huge regional differences in the UK market. After London, the South East saw the next-largest rise of 2.6pc. Together they drove a 3.3pc annual increase in UK prices, up from 3.1pc in June, with the average home now costing 245,000.
Excluding London and the South East, though, UK prices increased by just 0.8pc over the past 12 months, and the average home cost 192,000. Excluding London alone, UK house prices rose 1.3pc and the average home cost 213,000.
Simon Hayes, UK economist at Barclays, said: "The official house price data highlights the disconnection between London and the rest of the UK. With inflation at 2.8pc over the same period, house prices fell in real terms in every area except London."
So far, only London and the South East have seen prices return to pre-recession levels, but the impact has been to lift prices for England as a whole to a new high.
London house prices are 17pc higher than in January 2008, while prices in the South East have climbed 0.7pc above their previous peak. Excluding the two regions, UK house prices are still down 6.6pc.
Property experts pointed out that prices remain depressed in regions beyond the South East and London because buyers are struggling to gather a deposit, making affordable mortgages difficult to access.
Richard Sexton, director of e.surv chartered surveyors, said: "The improvement has been focused mainly on the South East, where there are more equity rich buyers who can access mortgage finance. Unless you have significant chunks of equity it still isnt easy to get a mortgage."
TUC General Secretary Frances OGrady added: "Todays figures show that the UKs so-called recovery is based on house price rises rather than growing pay packets, with the cost of properties rising three times faster than wages. This may be enough for wealthy homeowners in London but its no way to secure a sustainable