While the rest of the UK scrambles to get back into a sustained period of stability, enormous demand has seen the British capital establish itself as a safe haven for international investors, with figures released by property website Rightmove showing that the average price of a London property has increased by £30,000 since the start of 2013. Recent figures from CBRE suggest that London attracted 21 per cent of all European inward investment in 2012.
Investment and development firm, Shaftesbury, point to London’s West End as a hot spot, with demand causing rents to soar. "London continues to attract unprecedented levels of interest from across the world from businesses choosing to locate and invest here, from visitors seeking to experience its unrivaled variety of attractions and from those who live and work here." the firm said.
There are concerns, however, that the bubble is dangerously close to bursting. At £1.5million, the average price of a West End property is already more than 6.5 times the UK national average, and many current owners are refusing to sell, believing the market has not yet peaked. The dwindling prime supply and soaring prices are causing investors to look into secondary markets.
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The number of foreign investors looking at London for both residential and commercial investment opportunities has a potentially devastating knock-on effect to local economies. Many investors are purchasing buildings as pure investment – property agency Savills suggest that fewer than half of homes purchased in the prime central London are used as the buyers main home – properties are thus left unoccupied, as with values increasing at such a rapid rate, it makes little sense to let them.
Many are purchased as trophy investments, in 2012, of 7,000 new-build homes sold in the prime central London market, more than 5,000 were sold to overseas buyers. This skewering of the traditional market model has the potential to leave prime locations as virtual ghost towns, with local businesses suffering, eventually leading to a decrease in commercial property values in these areas, particularly smaller units aimed at serving the community, such as convenience stores and other amenities.
Another concern for the market is that, while values are affected by the strength of the pound and general investor confidence, global equity markets also have a large part to play. For example, according to research by Fathom Consultants, prime properties in the capital city may see their values slashed by 20 per cent if the US’ quantitative easing program ends.
Danny Gabay, director at Fathom, added: “[The Central London market] is more overvalued than we’ve ever found it to be before – and our model goes back to 1985. [The market] could inflate yet further – but we are now in a position where, once you’re overvalued, I can’t predict where exactly the trigger will come from, but you are vulnerable to a correction.”
For now, however, prime London property remains a great investment prospect, with further growth expected throughout 2013.
