Overseas investment into London real estate is running at £3.7 billion a year and at this rate, foreign buyers will own all residential property in Greater London by the middle of the next century, according to Savills.
They are responsible for 34% of all London property transactions although most investment is channelled into high-value residential properties areas such as Mayfair, Kensington, Notting Hill and Chelsea. Within central London, foreign buyers accounted for 65% of all funds exchanged for properties valued at more than £5 million.
But the trickle-down effect of these capital injections has been limited by the concentration of these funds towards west London. ‘It is as if the equity is getting stuck in prime south-west London; of the £3.3 billion into prime London, only £0.5 billion left via the large south-west markets in 2010,’ said Savills’ head of research, Yolande Barnes.
Inflows at the top end of the market are starting to spread into less central London locations, pushing UK property owners further out. Because the number of foreign investors buying in London has climbed since 1960 and UK owners tend to hold properties for less time than overseas investors, London’s property market is becoming increasingly international, with substantial ramifications.
External property investment has been driven recently by upheaval across the Middle East; central London property has become a financial parking space for high net worth individuals in a period of low interest rates and high political and economic volatility. Increased purchases from Greece, Spain and Italy suggest a similar motivation.
Should this trend spread further East, Chinese mainland billionaires would have the capacity to increase ultra-prime real estate prices by as much as 15%. Western European, North American and Middle Eastern investors are the most prolific buyers in London, followed by Russian, Indian and Pakistani nationals.
Savills says South Asian spend is also highly significant in London, as the value of house purchases from India and Pakistan exceeds that of investors from elsewhere and strong national and personal ties create scope for wider investment.
‘China, Asia Pacific, Latin America and even Africa all have huge potential as future sources of inward investment to London real estate,’ Barnes said. ‘The already established preference of buyers from the Asian sub-continent for London will mean that Indians will be among the most important buyers from the emerging countries in the future.’
As this high value spend limits supply and increases prices in specific neighbourhoods, those local property economies could benefit but at the expense of the city’s less glamorous postcodes. The hope is that the overseas effect will source capital for flagging local markets.