In recent weeks there has been a great debate about foreigners buying London properties, which are reportedly inherently raising the prices and pushing out the ‘ordinary person’ out from the London market. How true are the allegations against the overseas investors pushing up the prices and pushing out the ‘Londoners’?
London property prices increased by 9% during 2013 and the capital has always been seen as safe investment in a time where safe assets are becoming increasingly harder to find. This is creating fears of a housing bubble and London is becoming increasingly unaffordable for many individuals. Some agents suggest that more than 75% of central London’s prime property was purchased by foreigners last year which seems to be an alarmingly high statistic.
This trend does seem to be at the high end of the market so it could be argued that your average property owner is unaffected by this different league! According to the International Residential Investment Report by Knight Frank, foreigners purchased 49% of property worth more than £1million in central London. This would mean that foreigners have most certainly contributed to the 9% housing price increase.
Russians tend to be the face of rich foreigners buying up land in London. Overall, Russians bought 8.5% of properties worth more than £2million between March 2012 and March 2013. While Middle Easterners have also become a high-profile and recognized group buying up London’s property market with 16% of prime property being bought by people from the Middle East and North Africa in 2011.
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However, an important question of this issue is ‘who is a Londoner?’ In a city that is increasingly diverse and a melting pot of culture and diversity this can be a difficult question to answer. Knight Frank reported that only 28% of foreign buyers did not live in the U.K. So, is current residency what determines a foreign buyer? If a French investor has rented in London for 8 years and then decides he wants to buy – should he be considered a foreigner?
Perhaps this difficult question could be answered by primary residence. The real estate firms Savills found that 37% of people purchasing prime real estate in central London would not make this purchase their primary home but rather another stop in the international fleet of houses that include stops like New York, Hong Kong, and Moscow. This is a problem because as these prime locations in London become unattainable for domestic buyers the foreign investors stop in for a weekend or a summer but contribute relatively nothing to the local economy.
In response to the fastest housing price increase over the past 3 years Britain is considering introducing a capital gains tax on foreign property investors – a practice that is already done in Singapore, Hong Kong, Switzerland, and many other countries. This could help ease the fears of another housing bubble induced by cash-rich Russians and Middle Easterners.
Britons already pay a capital gains tax (28%) if they make a profit on reselling property that is not their primary residency. However, a foreign investor has been exempt, unlike in many European countries. By charging non-resident property owners a capital gains tax it would simply bring the UK into the same practice that is upheld on mainland Europe. Although the tax is not the only reason foreign investors find London a “safe haven” for real estate investment, it could have an impact that would help domestic buyers compete in the market.
New homes are springing up across the Capital but much fear that this is to feed the appetite of the foreign investors rather than meet the need of domestic buyers. It is essential the London real-estate market reflect the true supply and demand of both domestic and foreign buyers and not a market that is skewed by the cash-rich foreigners who are leaving central London emptier yet more exclusive.