With Rightmove reporting today that price growth in London is now filtering out to surrounding areas in the south of England and therefore taking asking prices to record highs, it is perhaps time that experts will start talking more about a real estate bubble.
Indeed, the Rightmove market report shows that there has been a 7.3% annual rise in asking prices, the highest since before the credit crunch in October 2007. While northern regions still lag behind, on average by 6%, it is clear that lack of supply coupled with increasing demand is indeed pushing up prices at a higher rate than might be healthy for a recovering property market.
The Rightmove report also points out that the number of properties coming to market so far in 2014 is 13% higher than a year ago yet still there are not enough to meet demand. Some of this is fuelled by demand from overseas buyers who regard London as a safe haven for investment with buyers from Russian and the Ukraine making more inquiries due to political instability. There are perhaps more reasons for people buy a home in London than there are stops on the tube map.
But there is more to the market than this analysis might suggest. For example, according to Knight Frank the national mainstream market is now growing at a faster rate than prime central London, often regarded as the sector seeing the most investment from abroad. The Knight Frank analysis shows that it was only last year, for example, that Chinese buyers began showing a lot of interest in property and they have now overtaken Russians at the biggest buyers of prime residences.
Also, last year the number of European buyers fell from 16% to 11% and there were no Greek buyers for the first time in four years. So China has replaced Greece as one of the 10 largest groups of buyers in prime central London.
British buyers are still at the top, followed by the United Arab Emirates and then Russia with China in joint fourth place with Italy.
But it is not just a desire to buy property in London that is boosting Chinese investment, visas play a part too. China overtook Russia as the country granted the most tier one investor visas in the UK since the scheme started in 2008. The UK government grants the visas in exchange for investments of between £1 million and £10 million and 187 were issued to Chinese nationals in 2013, the highest ever total to a single nationality in one year.
According to Knight Frank, the reasons behind the increase include a government initiated austerity drive that is cooling spending in China on luxury items. Other factors include the growth of foreign travel and social media, the strength of the Chinese Renminbi versus Sterling and a desire to escape air pollution in some areas of China.
All of that comes against the uncertain backdrop of a US$10 trillion economy that is shifting its focus away from heavy industry towards consumerism.
Chinese buyers also prize London for its heritage, schools and universities, growing levels of New build homes and the fact residents are not taxed on their global wealth, unlike the United States. The fact Canada scrapped its immigrant investor programme this year will also benefit London as the North American country had been a popular destination.
Burgeoning wealth levels in China suggest demand will remain strong. Knight Frank's Wealth Report indicates the number of US dollar billionaires in China will grow 80% by 2023, placing the country second behind the United States by number of billionaires.
Several major commercial and development deals in the last year underline the appeal of London in China, including Chinese developer Greenland buying the Ram Brewery in Wandsworth for £600 million and a deal by Advanced Business Park for a 35 acre site at Royal Albert Dock.
Knight Frank data also shows that Russians viewing prime central London property online fell by an average 25% in the 11 months to January 2014 versus the same month in 2013 while there was a 2% year on year rise in February that reversed the decline as political tension grew.
Meanwhile, there was an average 121% increase in web traffic from Ukraine over the whole 12 month period. While it shows demand is resilient, it is too early to predict how a changeable political situation will affect transaction levels. But what is certain is that as long as demand remains high in London, outlying areas will benefit from the ripple effect.
Ray Clancy
Editor Property Wire
