London Property – Live and let buy; Why an influx of foreign money is good for London’s property market

I came across an article relating to the London housing market and the affect of foreign money on the Economist.  The article grabbed my attention because I am unfamiliar with the London housing market and thought I could learn a thing or two about it.  However, the article had raised more questions than it answered.

The article’s purpose was to show that influx of foreign money is good for London’s housing market.  But the author does not touch on the foreign money and its affect on the London property market well pass the first half of the article.  The author starts the article off with the statement from the 2011 census of Britain that the majority of the London population had grown with the exception of London’s wealthiest borough, Kensington and Chelsea.  Here houses were kept “empty by rich foreigners who buy them as investments or as occasional summer homes.”  The author supports the statement with a chart created by Savills, a global real estate services provider, demonstrating the percentage of buyers of prime London real estate for years 2005-2012.  The author does not say what the sample size or sampling approach was.

The data represented the increase in the foreign versus the British prime London property buyers year over year.  We see an increasing trend where 25% of homes in central London were sold to foreigners in 2008, increasing to 38% in 2012.  The author goes on to claim that during the 2008 recession, foreign buyers had helped to finance off-plan¹ flats construction.

   
The author’s focus chart should have reflected overall trend in the number of houses sold or built in the market and what portion of the buyers were foreigners.  I did a bit of research to validate the author’s claim and found the following data on the private housing completions (in the UK market) and the nationality of new build buyers (in the London market) in Savills UK residential market report.  

Under the “Private housing completions” chart, we can see that housing completions had dropped from 175,000 to under 150,000 in 2008.  The downward trend continues through 2010, this is aligned with the recession.

The “Nationality of new build buyers” chart shows that indeed the majority of London property buyers were foreigners from 2011-2013.  The data reflects that only about a quarter of the London property buyers are from the UK.

  

Additionally, the author claims that “Foreign competition may well price some British people out of buying flats to live in.”, but show no data to support whether British couldn’t afford to purchase a London flat was entirely due to the foreign buyers.  As I read this statement, questions relevant to perspective home buyers purchase ability arose.  The author had left questions around the credit profile of the potential London buyers and whether lending policies became stricter unanswered.  I found additional data the Savills UK residential report about the perspective London buyers’ profile.  Challenges that faced London buyers were “Failure to save for a large enough deposit, to satisfy lenders’ more stringent criteria post credit crunch, remains the greatest barrier to home ownership."  This would indicate that foreign buyers are not the only reason that local British buyers are unable to purchase a property.

In conclusion, I thought the article raised some good points concerning the London housing market and the affect of foreign buyers.  But I also felt that the data presented by the author to support the article’s argument was weak and the statistics used were not convincing enough.  The author had presented percentages here and there in the article but did not offer a holistic view of what the remaining percentages cover and where the data resides.  Had I read the article alone and did no additional research on my own; my understanding of the London housing market would remain anecdotal at best.

Note:

 1 Off-plan properties are pre-construction property and are usually marketed as real estate developers

Reference:

“London Property – Live and let buy; Why an influx of foreign money is good for London’s property market”. The Economist. 09 November 2013. Web. 20 November 2013. 

“Spotlight Bridging the Gap in Housing”. Savills World Research UK Residential. November 2013. Web. 20 November 2013.

“Spotlight Prime London Residential Market”. Savills World Research UK Residential. September 2013. Web. 20 November 2013