Why London’s Property Slump Spells a Great Opportunity For Foreign Investors

The capital of the United Kingdom and among the oldest of the world’s great cities with a history spanning nearly two millennia, London is by far Britain’s largest metropolis while also staking claim as the country’s economic, transportation and cultural centre.

Despite topping the 2017 Alpha Cities Index – a report compiling the world’s most desirable urban locations taking into account factors such as safety, financial concerns and a city’s practicality – and remaining the largest ultra high-net worth city in Europe (individuals with $30m or more), London has had some air taken out of its slowly deflating property market amidst political and financial uncertainty linked to Brexit.

Official figures released this week by the Office for National Statistics (ONS) revealed UK house price growth over the month of June slowed to the lowest annual rate in five years, with London recording the weakest reading across the country with an average price drop of 0.7 per cent. This marks the fifth month this year that London house prices have fallen.

While hitting the London local residential market the hardest, the drop in house prices has only strengthened foreign investment into the city.

According to new research released by UK-based international estate agency Hamptons, foreign investors bought more than fifty per cent of all properties for sale in the most exclusive areas of London in H2 2017, amid reports by the Financial Times that the asking prices for homes in these affluent areas have hit their lowest figures in more than a decade.

In H2 2017, more than 50 per cent of properties in London’s most exclusive areas such as Kensington (pictured) were purchased by foreign investors.

The recent surge of foreign investment into London – especially from Asia which currently makes up roughly 60 per cent of all overseas buyers – shouldn’t come as much of a surprise, however.

Led by investors from Hong Kong and Singapore, foreign buyers snapped up nearly 15 percent of newly built homes in London between 2014 and 2016.

Concurring the government is facing pressure to ensure more affordable housing is available to locals before anyone else, London mayor Sadiq Khan earlier this year promised people who live or work in the capital will get a month’s ‘head start’ to purchase homes of up to £350,000 before foreigners can make a bid.

However, Khan also stressed that “international investment plays a vital role in providing developers with the certainty and finance they need to increase the supply of homes and infrastructure for Londoners.”

If foreign investment into local developments is what Khan believes will drive the London property market into a position of increasing strength moving forward, there certainly hasn’t been any shortage of it in recent years.

In early 2017, an apartment complex in Southwark was 100 per cent sold to foreign investors. In the Isle of Dogs, a development with apartments starting from a pricey £400,000 was 87 per cent sold abroad. In Westminster – an area favoured by hungry Singaporean investors –  stats show that almost 40 per cent of newly built properties were sold overseas over a two-year period.

High net-worth foreign buyers have for years been attracted to London homes as a stable investment opportunity, especially those from countries that are currently experiencing political instability far worse than Britain’s.

Further than being drawn to a city likely to make them a strong return on their investment, London’s superb lifestyle and its status of one of the world’s leading megacities are another two of the capital’s prominent draw cards.

Boasting a vibrant cultural scene like no other, four extremely well-connected airports and some of the world’s most famous, recognisable landmarks, it’s easy to see why London is such an attractive destination for overseas buyers.

Its strong investment potential, superb lifestyle and status as one of the world’s leading megacities makes London an attractive destination for overseas investors.

“The highly-affluent reside in and visit London to socialise, do business, vacation, and take advantage of the myriad of services and cultural highlights on offer,” state analysts in the 2017 Alpha Cities report.

“A luxury residence here is widely regarded as a lifestyle necessity for the wealthy elite,” the report adds.

The consistently large amounts of foreign investment into London should be a sign of the property market’s overall strength.

With many experts predicting overseas buyers would drop off in droves following changes to Britain’s Stamp Duty Land Tax rates designed to increase the levy payable on high-value luxury properties combined with the country’s financial and political uncertainty, London still remains a very appealing option to ultra high-net worth investors.

“London is home to many of the world’s most affluent families and it continues to attract both British and international buyers,” says Alex Newell, managing director of high-end property consultancy company Hanover Private Office.

Newell even goes as far as predicting that when all the wrinkles in Britain’s economic sphere are ironed out, international buyers will be presented with an even stronger outlook going forward.

“Post the Brexit vote, a weaker pound sterling, low interest rates for the medium term, and the choice of quality luxury real estate means buyers will experience a once-in-a-generation buying opportunity.

“London will remain a global city, which is hard to beat for business, family and lifestyle,” says Newell.

If history repeats itself as it so often does, the London housing market will once again return to a position of strength.

But as history has also shown, foreigners from Asia, led by those from Singapore, Hong Kong and Malaysia, haven’t been – and will not be – deterred from investing heavily into property in London despite the country’s overall economic unpredictability suggesting they should hold off.