The impact of overseas property investment on the UK property market has been a widely debated topic for some time. Some experts claim that foreign investment is causing prices to rise across the housing market, making it harder to get on the property ladder, while prominent figures such as Sadiq Khan have expressed concerns over homes in London being used as “gold bricks for investment”.
However, to truly assess the impact of this trend, we need to look at what these buyers are doing with their property. If the “buy-to-leave” phenomenon is true, a significant number of empty homes would, of course, be a concern for both tenants looking for a new home and landlords seeking properties to let. But in most cases these homes are on the private lettings market, or lived in by family members, which represents a much more positive outlook.
While we must not overlook the concerns expressed by Londoners struggling to find a place on the property ladder, we must acknowledge that at a time when we are in desperate need of new homes, overseas investment plays a crucial role in stimulating the housebuilding market.
Concerns have not gone unnoticed by London politicians, with Labour Mayoral candidate, Tessa Jowell, vowing to introduce punitive taxes on the owners of empty properties during her campaign, while the national Labour party is proposing higher stamp duty rates for foreign buyers. If these policies were to deter overseas investors, the impact may be more widely felt than most realise.
An often overlooked aspect of overseas investment is its role in speeding up the development process, with off-plan sales bringing forward construction on otherwise unviable sites and therefore creating further new homes to meet buyer and landlord demand. Not only does investment from overseas contribute significantly to construction costs, but it also reduces risk for developers, enabling properties to be sold before they reach completion.
The degree to which foreign investment affects vendors in the UK also varies by location. A recent study by Knight Frank found that while only 7 per cent of new-build properties in outer London are purchased by overseas buyers, the figure rises to 20 per cent of new-builds in inner London and 49 per cent in prime central London.
This partly explains the fierce level of competition in London’s prime areas, but also acts as an explanatory factor as to why affordable commuter hotspots within close proximity are growing at the rate they are. Areas such as Slough, for example, are becoming increasingly popular, with property prices expected to rise 60 per cent by 2020 and we are seeing unprecedented levels of interest for our Union Place development based there.
It is evident that London is still building too few homes; this is in fact the greatest concern and one which would only be exacerbated by restricting inward investment. This investment not only finances the supply of market housing, but more widely, it supports employment and growth in London. Research from London First showed that every 100 homes developed in central London directly contributed £28m to the economy and created 550 jobs, which is staggering.
Fundamentally, London, and the country as a whole, has been built on international trade and if London is to continue to thrive, the city must be open to overseas investment.
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