London's global appeal
Demand for property from overseas buyers in London is strong, but what impact does overseas equity have on the capital's housing markets?
24 June 2013, Words by Yolande Barnes
London is the fastest-growing city in Europe and is expected to grow by one million people in the next decade. It is also an extremely cosmopolitan city so a large proportion of people buying homes in the capital are international. The signs are that the importance of overseas buyers in prime markets has increased in the last decade or so but not above levels seen previously, in the 1980s and 90s for example. So what we are seeing currently is nothing new – although it probably covers a wider area of newly-prime London than it has before.
This recent growth in international purchasers is partly because the absolute numbers of UK buyers declined in the wake of economic recession, falling real incomes and scarcer finance, making overseas purchasers a higher proportion of the whole market.
It also seems to be linked with the increasing number of overseas arrivals in London over this time. London has gained even more stature as a global city and increasing numbers of overseas buyers are coming to live, work, study and set up businesses in the capital.
Most importantly though, the overall proportion of overseas buyers is still closely linked to the growing numbers of foreign-born residents in London generally. It is simply reflective of the growth seen across the board. 35% of all Londoners, not just those buying prime property, were born overseas. House purchase by international buyers has more to do with residency than anything else.
The neighbourhoods that were deserted in the post-war era have now been repopulated – by Londoners of all types. The prime area has grown over the years but the extent of other neighbourhoods has grown too as gentrification, intensification and regeneration has created new places. Some of this regeneration has been made possible by international and local buyers reserving units in advance of completion “off plan” and effectively forward-funding development. This report examines the impact of these buyers and sets them in context of the whole market, including ‘second-hand’ stock, referred to here as ‘resales’.
The majority of so-called international buyers in the prime London market are buying their main residence. Over 93% of prime resale buyers work or have business in the UK.
The number of international prime buyers is entirely in line with the nature of London as a whole. 35% of all Greater London residents were born overseas and, in some boroughs, this figure is over 50%. The fact that these proportions seem to have increased significantly in most boroughs over the last 10 years has brought the impact of immigration not just to the forefront of political debate but also to the forefront of housing market commentary. There is increasing interest about the consequent impacts that it is having on demand for housing and the ability for supply to keep pace.
The two boroughs with the highest proportion of foreign-born residents are Brent and Newham, which are boroughs with some of the highest levels of deprivation and a high proportion of social housing tenants – definitely not the exclusive haunts of the global super-wealthy. The third and fourth largest proportions of overseas residents are to be found in boroughs at the other end of the social spectrum where not just London’s but much of the UK’s affluence and also a great deal of global affluence is concentrated.
But not all of London’s most expensive or ‘prime’ residential markets are in the same situation as Westminster and Kensington & Chelsea. Prime markets are mainly found in the boroughs of Hammersmith & Fulham, Camden, Islington, Wandsworth and Richmond. Some of these have high proportions of international residents but others, such as Richmond, do not. London’s most expensive housing is not therefore automatically associated with high numbers of foreign-born residents.
Graph 3 puts all of the frequently-reported high percentages of overseas buyers in the prime London markets into perspective, showing how many sales there are to different types of buyer. The overwhelming majority (62%) of sales in prime markets are to people buying main residences. Of these residents, in line with London as a whole, one-third were foreign-born.
Only 750 of the 97,000 Greater London sales in 2012 were prime new build sales to international second home buyers. Occupation of these residences is expected to be lower than 100% but most will not be left empty. ‘Lights out London’ would seem to be a myth in all but a handful of locations.
A significant proportion (22% of the total) buy property to let it out. These properties will be occupied – by tenants. Overseas buyers in prime London are more likely to be landlords than UK buyers, possibly because UK-born buy-to-let investors are buying at lower ticket prices, and higher yields, outside prime London.
New build sales in London accounted for just 22% of all prime sales in 2012-13 but, nonetheless, are a high-profile and closely-watched segment of the market.
Buyers in the new build market reflect developer’s marketing strategies and what has been sold in different parts of the world. Hong Kong Chinese and Pacific Asian buyers feature heavily in this market, the result of sales at exhibitions in Hong Kong, Singapore and Kuala Lumpur.
For overseas buyers, new schemes offer a convenient, low maintenance investment, typically on long leases or freehold (leases are unfamiliar to many outside the UK). They can be easily managed from abroad and rental income covers costs.
Buyers from Hong Kong and China were the largest group in prime new London in 2012-13, accounting for 27% of the market by volume, although just 17% by value.
UK buyers are the biggest purchasers in prime London by value, accounting for 20.1% of the market, followed by the Eastern Europe and the CIS (19.7%) and Middle East & North Africa (19.4%).
Middle Eastern buyers and those from Eastern Europe and the CIS are the highest spenders in prime London, given that their new-build purchases are concentrated in the most expensive central areas. These buyers dominate the new build market in sales over £2,000psft, and £5 million.
UK buyers are an important group, and cannot be ignored in favour of overseas sales particularly when increasing numbers are now prepared to reserve in advance of completion.
As in all markets, new-build market buying habits echo those of the home markets as buyers prefer the type of product that is most familiar, especially when they are new to the city.
Chinese and Pacific Asian buyers favour high-rise, contemporary buildings in waterside locations. UK and Western European buyers are more likely to purchase a converted ‘new’ property than other global regions, and also favour low and mid-rise property.
Buyers from Eastern Europe and the CIS buy the largest units, in excess of 2,000 sq ft on average. UK, Chinese and Pacific Asian buyers purchase the smallest properties, averaging less than 900 sq ft.
The summaries of purchaser behaviour (see London at a glance)by global region give an indication of some of the characteristics of each group and put this behaviour into the context of home markets.
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