London – City Hall on side for off-plan property foreign investment
Report could ease pressure on Mayor Kahn when targeting foreign property investors
It’s official – London’s new build developers need to sell to foreign investors. And that’s not Castlereach extolling the virtue of our valuable bank of high net worth foreign property investors. It’s what City Hall says, in a report briefing which has spun Sadiq Khan’s anti-foreign property investment rhetoric a full 180 degrees.
Here I look at the quiet about-turn made by Sadiq Khan’s administration, the research report for which it is calling for researchers, and what it means to developers of new build property and for sales of off-plan property in London.
Why is London property so expensive? … Blame the foreigners!
Londoners may have voted to remain in the European Union and be less visible UKIP than pretty much anywhere else in the United Kingdom, but they are most definitely anti-immigration when it comes to property investment. In a city that is culturally diverse (perhaps the most in the world?), Sadiq Khan found it extraordinarily easy to pander to the widely-held belief that London’s high house prices have foreign investment to blame.
Blaming foreign investors for high property prices is a capital city pastime, the topic of dinner parties and catch ups with friends. Embedded in the mindset of most Londoners. A 2014 YouGov survey found that almost half of Londoners felt the cause of house price inflation was the fault of foreign property investors and speculators. It probably runs counter to what you’d expect from a city where more than a third of its citizens were born overseas.
Mayor Sadiq Khan promised a review of the effect of foreign property investors on the London property market, and the hunt to source research is firmly underway. But the wording of City Hall’s research briefing indicates a softer and more welcoming approach to property investors from abroad. It also confirms the possibility that foreign investors might be good news for the London property market! Who’d have thought?
City Hall welcomes foreign investment into London off-plan property
The City Hall’s Housing and Land Directorate’s briefing says “We welcome investment from around the world in building new homes,” and while it acknowledges people’s concerns about foreign property investment in London, it also says that “The GLA wants to ensure any discussion of policy responses is underpinned by clear evidence and understanding.”
There are four areas the report examines and attempts to clarify with clear evidence to produce that understanding:
- How many new homes are sold to property investors from overseas?
- How many new homes owned by these investors remain empty?
- How reliant is new build development of foreign property investors?
- How does overseas financing contribute to the supply of homes?
The briefing accepts that “Off-plan sales are an important part of development viability. Industry bodies report that development finance can be difficult to obtain until 40% of units have been reserved and that most developers will not start construction on a development until a third of its units have been pre-sold.”
It admits that there are reports of the active role that foreign investors play in the new build property market, and wants to quantify their role.
Will the report be important for developers?
Sadiq Khan has made a big play of his desire to clamp down on foreign property investment into London. However, the briefing for the research role could give Mr Khan a heap of news and statistics that he wasn’t expecting to hear, but that he might want, now he’s had time to meet with industry insiders, property developers, estate agents, and others.
The reality is that the ability of new build developers to build the supply of homes that London needs relies on foreign investors. For Sadiq Khan and City Hall, this is an important concept that they are starting to understand. It’s real important for Mayor Khan because what he wants to do is build more affordable homes for Londoners – and that needs the developers on board. Right now, a big number of those affordable homes are built only as a condition of the permission for other new build properties given to developers.
An example of an affordable housing initiative in action is the development of the Aykon London One Tower, south of the Thames. It’s 50 floors of apartments are priced at up to £4 million. However, as part of the deal, Lambeth council gets 90 affordable homes. Without the luxury flats, those homes would not have materialised.
So, for sure the report will be relevant to developers – but it will also be important to Londoners. Perhaps it will be most important to Mayor Sadiq Khan: he’s promised a review, and he’s promised more affordable housing. Somehow he may need to extricate himself from blaming foreigners for London’s high house prices – what better way to do that than by an independent report that shows foreign investment is an integral piece of London’s property landscape?
A favourable report will likely kick into touch all the talk of penalising foreign property investors, and that will allow developers to continue to develop new build sites backed by foreign investment into off-plan property.
Foreign investors support new homes for Londoners
Off-plan property sales to investors – both domestic and foreign – help to fund development projects. These projects have created around a third of all affordable homes built in recent years – and that’s according to the GLA!
However, the GLA and Mayor may well have a point when they express their concern about investors buying property to leave empty. We’re not sure why investors would want to do that – our foreign investors are serious about making money from their London off-plan property purchases and want to tenant them after completion.
London’s property market has long since relied on foreign property investment money. Without investment from the Far East, Europe, and the United States, residential developments such as those in the shadow of Canary Wharf’s towers would never have got off the ground.
Will Mayor Sadiq Khan’s review harm foreign property investment?
It’s probable that the review ordered will be mostly accommodative to foreign property investors in London. The industry has already told the Mayor that it’s needed. He may have started to realise just how much his plans for more affordable housing rely on the ability of developers to continue building new build at a range of price levels. And that development relies pretty heavily on foreign investment, especially into off-plan property opportunities that support funding for entire projects.
The mayor may try to provide some solace to Londoners by instigating penalties or restrictions of some kind on investors (foreign or otherwise). In reality, there is probably little he can do. Calls for rent regulation, higher taxes on land, greater borrowing powers for local authorities to build, and harsh council tax penalties would all need central government legislation. That’s highly unlikely to be forthcoming.
Londoners want what Mayor Sadiq Khan wants: greater numbers of better homes, and more affordable housing.
Instead of butting heads with developers and being forced to fight foreign property investors, the report that City Hall has ordered may give the Mayor reasons to be more accommodative to developers and the investors in their off-plan property. Finally, investment by foreigners may well be seen to be positive for London’s property market at all price points, and not the sole reason for property price inflation.
To connect with us and our access to an active foreign investor base, call my team direct on +44 207 923 5680.
Keep in touch and connect with us on LinkedIn.
Live with Passion,
Brett Alegre-Wood
