THE LONDON BUBBLE?12 June 2015
THE SUPER-RICH HAVE BEEN SNAPPING UP “SUPER PRIME” REAL ESTATE IN LONDON FOR YEARS AND ACCORDING TO THE WEST END ESTATE AGENT, WETHERELL THERE IS ANOTHER £4.5BN WORTH OF PROPERTY ON THE HORIZON THIS YEAR.
The reason is simply ‘easy money’, if you are in a position to purchase a property in London for example of one of the luxury apartments at One Hyde Park which recently sold a one-bedroom apartment for a measly £10 million, you are virtually guaranteed to make hundreds of thousands of pounds profit in one year for signing some paperwork and sitting on the property. Supply is not widely available in the area of Mayfair, London and the need to have the best addresses in London is pushing the price further up
But as the super-rich flock like sheep to London is the opportunity of easy money dwindling with the threat of high mansion taxes and a strong pound, are darker days ahead?
Deutsche Bank believe wider economic and politically drivers could cause the bubble to burst. One key issue is the US halting its quantitative easing programme. This has had a detrimental effect on the Chinese currency value, which could reduce the number of foreign buyers into London as we have seen a large number of off plan buyers are coming from Asia. Simon French, chief UK economist at Stockbrokers Panmure Gordon believes that the impending mansion tax and immigration policies are sending “warning signals that the UK is changing as a place to do business” and Scott Corfe, chief economist at the Centre of Economics and British Research, is also bearish about the luxury London market and its ambitious pipeline of developments, drawing upon both global and domestic factors.
“We expect demand to fall back at the top end of the [London housing] market,” he says.
The amount of new developments both residential and commercial will continue to grow by as much as 10% in 2015 according to the construction products association with London littered with cranes but with the threats to the market, it remains to be seen if the peak is reached. The main factor does seem to be the political issue of the mansion tax but it is not the tax itself, it’s the signal its sends to the global buyer market. The industry though is vitally important to the UK construction sector. C & O Powder Coatings is based in the North West but a lot of the metal finishes end up on the skylines of major London properties including One Hyde Park, Pembury circus and many more. Along with architects, contractors, manufacturers to electricians and designers. The impact this industry has on the overall sector is crucial, but during the recession foreign investors have seen London as a safe haven and have done for years.
Caution seems to be the word on the mind at the moment from the economic experts but momentarily the profit of easy money in London does not appear to have dried up yet. One think is for sure, the stability of the market is unpredictable and volatile as is the overall economy. Watch this space.