Number of overseas investment buyers in London overestimated, new research suggests

5th July 2014

Story courtesy of Property Wire.

Overseas investors buying property in London to let out rather than live in only account for an estimated 7% of all greater London residential transactions, new research shows.

Reported high rates of overseas buying are due to high investor activity in the prominent new build sector which accounts for less than 10% of all London transactions,’ according to the report from international real estate adviser Savills.

It says that it is due to London’s cosmopolitan nature, which results in a high proportion of foreign residents and a large number of foreign buyers in the city’s housing markets.

Savills also says that the while in the most reported, prime, second hand markets, international buyers account for 32% of all sales, just like domestic buyers some 88% are buying a home in which to live.

The report points out that the appeal of London’s residential property to international buyers, whether investors or end users, is a reflection of their widespread interest in other types of investment too.

Over the past four decades, London has been promoted from national capital to premier league global city, becoming one of the world’s most successful cities on a range of economic, cultural and social measures and a destination of choice for residential investment, it adds.

Inward migration and natural population growth boosted London’s population from 7.3 million to 8.2 million between 2001 and the 2011 census, with expectations that it will rise by a further million by 2021, the fastest rate of growth ever.
In the report Savills says that rising house prices are an inevitable consequence of rising levels of affluence and high levels of competition for a limited supply of homes. The shortage of homes, rising house prices and consequent exclusion from the market of many aspiring home owners are all highly contentious issues, but it is wrong to hold an influx of buyers from overseas responsible it adds.
International buyers account for a larger share of the central London, prime and new build markets. The report suggests that figures from these specialised markets have often been erroneously applied to the whole market.

The firm’s analysis suggests that international buyers have accounted for around a third, 32%, of the prime London market which accounts for the most expensive 8% of London sales over the past 18 months.

‘Even in these prime markets, domestic buyers outnumber international buyers by over a wide margin,’ said Yolande Barnes, Savills world research director.

‘Our analysis demonstrates quite clearly that these are not buy to leave owners as popular myth suggests and the majority are resident buyers, especially in the second hand market,’ she added.

While most international buyers are buying a main residence, the remainder are almost evenly split between those buying second homes for themselves of their family to use, for example when on business or studying in London, and those who are investing for rental income.

The split for 2013/2014 shows that 68% are UK buyers, 20% are international buying a main residence, 6% are from overseas buying a second home, and 5% are international property investors.

It is only in the central prime London market covering Knightsbridge, Belgravia and Mayfair that the market is evenly split between international and domestic buyers. Here, non resident international buyers account for around a third of buyers, the majority using their properties as second homes, for use when in London for business or pleasure.
Prime London house prices have grown by an average of 4.9% a year since 1979 compared to the UK average of just 2.9%.  In line with the firm’s forecasts, prime London residential values now appear to have reached a high plateau, having risen by 4.9% this year to date and 11.8% in 2013, driven by equity in a market where 90% of sales involve no borrowing at the point of purchase.

‘Global economic forces are shaping real estate markets across the world and few major cities go untouched. The global inflation of asset prices generally, and residential properties in key cities in particular, has played out in many locations among which London has been a key participant. International participation and demand for real estate is a clear reflection of the city’s role as a world player,’ explained Barnes.

‘Closing the door to such activity would not only threaten housing delivery and potentially exacerbate the city’s housing shortfall, but would also risk damaging an important component to London’s standing as a world city,’ she added.

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