United Kingdom, the financial center in Europe, has always been an attractive investment place. Because large amount of foreign buyers rushed into London’s real-estate industry, it has produced highest profits in the United Kingdom since 2011. It seems like British home sellers are never satisfied by the status quo as they raised asking prices to their highest levels in five years this month. However, the increasing price on the real-estate property did not stop foreigners from buying British homes. Instead, they invested more since they foresaw the huge potential of growing profits in the British real-estate industry.
Let’s look at some statistics: foreign purchasers spent £5.2bn on central London houses in 2011, £1.5bn more than in 2010 according to the think-tank IPPR. During 2011 and the first half of 2012, 60 per cent of buyers in the prime central London market were overseas buyers, according to research from BNP Paribas. What is the major reason why the property buyers chose London?
First of all, the drop in the value of sterling since 2008 has been the driving force for foreigners to purchase property in London, especially for Asian buyers. Over the last four years, the Pound has fallen by 32.5% against the Saudi Riad for example, effectively discounting property prices by one third. The relative lower price stimulates the foreign buyers to invest in London. Foreign buyers hope to earn large amount of money returns after the British economy recovers and the Pound rises again. Also, as the European economy continues to contract, the exchange rate of the sterling to the Euro has fallen down to 1.1441 EUR, compared to the average rate of 1.2219 EUR. This makes the real-estate property relatively more affordable for European buyers.
Moreover, the euro-denominated buyers who purchased property in their home countries late last year have seen the value of their investment fall in recent months. While prices for prime central London property increased 0.5% since November, currency movements for euro-denominated buyers have seen property values in their home countries decline by 4 percent. This makes London an attractive place for owning property in a “safe haven” because it is unlikely to diminish.
Despite the external factors above, the strength of London as a global city, transport connections and a shortage of new homes also attract foreign buyers to invest in London property. Although the increasing interest from foreign property buyers would boost the real-estate industry in London, we should also think about the negative effect it would bring to the Londoners— the increased number of homeless people; added pressure on people to bare more house debt. What do you think of the rising demand in London property and its effects on the domestic population?