International investment in the UK economy is normally highly prized. However international investment in residential property is at best regarded with suspicion and at worst seen as a disaster

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11/07/2017 About The Role of Foreign Money | Accelerating housing production in Londonhttp://lselondonhousing.org/2013/02/about-the-role-of-foreign-money/ 1/5  Leave a Comment  Posted on February 1, 2013 by lselondonAbout The Role of ForeignMoneyInternational investment in the UK economy is normallyhighly prized. However international investment inresidential property is at best regarded with suspicion andat worst seen as a disaster.The majority of statistics on the role of international investors in residentialproperty come from the major estate agents and concentrate mainly on primelocations in central London. One big issue in understanding these statistics is thatthe de nition of prime changes over time so longer term comparisons are dif cultto interpret. Thus when they say that the proportions of overseas buyers in primelocations at around 38% in 2013 is exactly the same as in 1990 and perhaps lowerthan the 1980s, like is not being compared with like. What is clearly true is that theproportion rose rapidly after the  nancial crisis – in part because the total numberof sales dropped dramatically as UK buyers withdrew from the market.The proportion of new build in central London that is sold to international buyersis far larger than for existing units. Savills  gures suggest that re-sales account fornearly 80% of the overall prime market and that over 60% of these buyers are fromthe UK. In the new build market however they assess the proportion ofinternational buyers at over 70% (some other estimates are lower). Within thisgroup the majority are being purchased to let; nearly 30% for main residences and16% as second homes. Other  gures suggest that perhaps 40% of new build incentral London was purchased by Asian buyers who are normally looking for arental return. As importantly a clear majority proportion of international buyersare resident in the UK and large numbers who are non-resident have strongeconomic and social ties with London. This and other evidence suggests that theHOME INTERACTIVE MAP THEMES ABOUT EVENTS MEDIA PUBLICATIONS11/07/2017 About The Role of Foreign Money | Accelerating housing production in Londonhttp://lselondonhousing.org/2013/02/about-the-role-of-foreign-money/ 2/5‘lights out in London’ issue is mainly con ned to a relatively small part of thehighest end areas of central London – where indeed there are clear signs ofchanging patterns of ownership and declining demand for local services.Outside central London the proportions of international buyers of new buildproperty is very much lower – at perhaps 20% for inner London and well under10% in outer London. Given that the vast majority of new build is outside centralLondon and the proportion of total sales that are new build is well under 20% theproportion of international sales is probably little more that 5 – 7% and falling astotal housing transactions rise.Finally sales under £2m seem to be continuing fairly briskly – although more slowlythan in the last couple of years. Sales of properties over £2m have declined withmany being withdrawn until post-election policy is clear.What are the issues?There are quite a number of issues raised by the  ow of international money intothe London property market – some of which are good and some bad. It is not asimple story.The bad aspects are the ones that have been stressed in the media:international money pushes up demand and therefore prices excluding UKresidents from the market. The evidence suggests that there have been bigeffects at the most expensive end of the market concentrated in primelocations within central London – but the impact on the London market overall,while real is small;international money increases vacancies. As noted above, this is certainlytrue in some parts of prime central London but the vast majority are occupied.Vacancy rates in central London have been high since records began in the midnineteenth century. There is little evidence that they are higher;international money may leave as fast as it has come if the value of thecurrency changes and con dence in the UK economy and the stability of thesystem is seen to be at stake. Certainly the reasons for investment are not assimple and for most UK residents this could in principle be a source ofvolatility.11/07/2017 About The Role of Foreign Money | Accelerating housing production in Londonhttp://lselondonhousing.org/2013/02/about-the-role-of-foreign-money/ 3/5The good aspects are mainly concentrated on the impact of international moneyon supply:international money saved the development industry after the crisis not onlybecause it increased demand but because international buyers were used tooff-plan sales and therefore supported the cash  ow necessary fordevelopment. The evidence on this is strong – but it was mainly limited tocentral London and to large-scale apartment developments;international money has helped maintain the  ow of affordable homes byunlocking market   development. Again the evidence suggests that somethousands of affordable units have been brought forward – but it is also truethat the proportion of affordable homes in these large developments is oftenquite small;international money is leading the surge in investment in large scale privaterented developments with the emphasis on longer term leases and predictablerent increases. Again it is clearly true that much of the early interest came frominstitutions based in countries with experience of this type of renting – but fewlarge scale private rented developments are yet on the ground.international money is looking for good management of the buildings andthe environment and will help professionalise management of both privaterenting and leasehold developments. The pressures for this are undoubtedlythere but the real impact cannot be judged in the short term.Proposed solutions include:Those that have been raised in debate are mainly to reduce the negativeimpacts of international money. These include (with no comment as yet!):Banning non-resident sales as has been done in a small number of otherEuropean countries – possibly limiting the ban to some price ranges/locations;Requiring that all developments be offered for sale in the UK(either as wellas abroad or exclusively)Restructuring taxation to ensure a  at playing  eld between those buyingoffshore and resident buyers (or to disadvantage off-shore sales);A mansion tax on high end housing in London;Restructuring property taxes to increase taxation on higher priceddwellings;11/07/2017 About The Role of Foreign Money | Accelerating housing production in Londonhttp://lselondonhousing.org/2013/02/about-the-role-of-foreign-money/ 4/5← About Alternative Housing Tony Travers →Increasing the tax on vacant units to incentivise letting out emptyproperties;At the limit compulsory purchase of units held empty for a long period;   Category: The Role of Foreign MoneyLeave a ReplyYour email address will not be published.Required  elds are marked*CommentName*Email*Website11/07/2017 About The Role of Foreign Money | Accelerating housing production in Londonhttp://lselondonhousing.org/2013/02/about-the-role-of-foreign-money/ 5/5Contact us:Twitter - @LSE_LondonFacebook - LSELondonGeographiesYouTube - LSE LondonEmail - lselondon@lse.ac.ukLogos and map designed by Alessandra Mossa. 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About the role of foreign money

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