The Overseas Buyer Boom
The property market is seemingly booming. House prices have jumped by 10.9% on year in April, the first rise in double figures since April 2010, leaving the average house price across the UK at £183,577.
This appears to be good news. Since the 2007 financial crisis, the property market is moving again, but UK nationals are not the ones driving it. Instead, the rising house prices are due to a wave of overseas buyers centered in London.
London is a ‘safe-haven’ for property investors because the market is so fluid – as a result more than two million foreign investors, from countries such as China, Malaysia, Singapore and Russia, own UK property. The ‘Finding Shelter’ report published in January 2014, cited that 85% of high-end London property in 2012 were bought by overseas buyers. Meanwhile, estate agent Savills found that, in 2013, two-thirds of homes bought by foreign buyers were not for occupation but investment.
The inflationary impact this London property boom has had throughout the UK is good news for any property owners, unless they want to move up the housing ladder. The price jump between different sizes and standards of property has increased considerably. Estate agents on commission are also benefiting from the surge in the market, as are property developers who are able to sell whole blocks of flats and housing developments to overseas landlords for prices far exceeding expectations. Yet, for those who aren’t so affluent, the boom isn’t such good news.
Many middle and lower earners in London are forced to pay high rates of rent simply because purchasing a house or a flat is too expensive. Blogger Sam Cookney even calculated that it’d be cheaper to live and commute to London from a spacious one-bed Barcelona flat complete with sun terrace, than it would be to live in a cramped one-bed flat in West Hampstead, London. Overseas investment is impacting elsewhere in the UK other than just London. Because of this high-end investment, property developers are becoming more attracted to high-value property opportunities, ignoring the lack of supply towards the lower end of the market. This distortion in house building priorities has meant that many are struggling to find affordable properties, particularly first-time buyers who can’t make it onto the property ladder in the first place.
Many people throughout the UK are calling for the government to take action. Free market organisation Civitas has called on ministers to operate in a similar way to Australia: no sale to an overseas buyer can take place unless that buyer can prove their investment will increase current housing stock for Australia. As of April 2015, the Government will be forcing foreign investors to pay capital gains tax should they sell homes in the UK. As a result the Government stands to gain around £125m between 2015 and 2019. Only time will tell if this is really enough.
Robert Gardner, Nationwide’s chief economist, has found that earning’s growth is finally outpacing the rise in cost living, whilst house price growth is still exceeding that of income. If the government doesn’t gain more control of these overseas property buyers, then what is to say that the market couldn’t crash again?