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Post by eascogo on Sept 27, 2016 17:25:46 GMT
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Post by mrclondon on Sept 27, 2016 23:09:20 GMT
I've skimmed that article but it wasn't immediately clear the extent to which it was discussing premium property (say > £2m) owned by HNWIs as an investment vs typical 2 to 4 bed flats and houses owned by people as they have to live somewhere. Too much of the media coverage of London property prices (and those of other "World Cities") is focussed on the former. What HNWI do with their money is of minimal relevance to most people, and makes it slightly too easy to dismiss the problem. To understand the valuations of the various Mayfair/Belgravia/Kenssington flats that have been funded on SS over the last few months requires an appreciation that a very significant proportion of Mayfair and Belgravia residential property is owned by uHNWI and is let to predominately non-UK citizens (mainly staff asssociateed with the diplomatic missions). Afordability is less of an issue as it is mostly corporate rentals. This article from The Standard last autumn puts the issue more directly into the context of affordability of anything by London's professional workers (never mind those supplying essential services). The average flat value they use of £450k will get just a 1 bed in most inner boroughs, possibly 2 beds with some compromise on location (e.g next the railway tracks). But is this a bubble ? Probably the definition of a bubble suggests it is. But (for now) the demand for property from normal people exceeds supply by a huge margin. Every development that goes up near me is sold out within hours of being released resulting in people queing overnight to be sure of securing one ... despite the apparently unaffordable prices. Another favourite media target is the vast Nine Elms development that far eastern off plan "buyers" (aka development financiers just like us in the p2p community) are reputedly "flooding the market" at a discount ... well yes they are, but I'm told by someone in the know that such offloading is for 2019-20 completions, any early 2017 completions are being snapped up as soon as they come available and the better ones are selling a a significant premium to the off-plan price paid by the investors. It should go without saying that people don't buy offplan for completion 6 years ahead (2014 for 2020) with an intention of living there, its pure investment / speculation attempting to make huge returns on the partial advance payment for the property. Only the real pessimists see brexit as having a significant impact. Yes, a few city jobs will inevitably have to relocate to inside the Eurozone, and the huge French expat community will almost certainly shrink significantly over the next 15 years; but to expect demand for property in London to nose dive to the extent there is a re-pricing of London property such that it could be considered affordable is I fear wishful thinking. By way of conclusion, if the definition of a bubble implies a major correction is due soon, then I would have to disagree and say it is not a bubble (yet). |
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Post by propman on Sept 28, 2016 8:04:50 GMT
My experience of the Prime Central London Market is that many buyers are UHNWI buying for their own use (as one of several properties). These have largely come from overseas although constantly changing depending on where is doing well or in crisis. So many from Russia/Ukraine, China, Middle East, even Greece at one point. However this market has gone down over the last 2 years partly from greater stability elsewhere, and partially from the increased supply (especially >£5m). This part of the market might be fully priced, but when compared to other world cities, the drop in the pound suggests that this is not in a bubble.
My impression is that the Grauniad are deliberately fudging the source of the data, using the prime property to increase the average, but the growth has been in the general property. Unfortunately evidence that property is snapped up quickly is a sign of a bubble as inevitably pricing reflects the extra demand, while increasing the potential drop in demand if some "crisis" hits.
A fair price depends upon the assumed interest rates going forward. If you use historic data on salary multiples, it is clearly in a bubble. But most commentators expect low interest rates for the forseeable future and so the annual cost of servicing the debt is not so out of kilter. In addition, the increased stamp duty and restriction of interest tax relief on borrowing is likely to reduce the attractiveness of properties for BTL landlords. Although there is a lot of talk of institutional private rental, it remains to be seen if this is sufficient to replace the main BTL private landlords in London. While this is insufficient, there wil be even greater demand from purchasers who are forced to buy with others financed by Bank of Mum & Dad. I think that this is likely to maintain the prices for the next couple of years. That said, the article does identify that they are only identifying a risk and cannot determine when any bubble will burst.
There is a big impact on London prices from the higher paid jobs based there many of which are connected to the finance industries. I think the issue of a major correction (which, if it comes I expect to be a long period of gradual decline rather than a classic bubble burst of rapid exit collapsing the market) might result from Brexit if the Financial Services Industries relocate key central departments to Europe rather than just sufficient to allow business to continue to be done within EU when required.
- PM
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adrianc
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Post by adrianc on Sept 28, 2016 8:18:59 GMT
For flats, London's in a separate world. But for detached properties, Oxford is not that far behind London; for terraces, Oxford is almost neck-and-neck (while London terraces are almost on a par with flats); and for semis, Oxford is considerably higher. Strange. Perhaps the problem is a specifically flat-based bubble, and perhaps the inclusion of seriously high-end flats skews the London figures?
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Post by yorkshireman on Sept 28, 2016 9:48:00 GMT
What HNWI’s do with their money is of relevance to most people although many don’t realise it.
The price a buyer, HNWI or not, is prepared to pay cascades down the property ladder anywhere, not just London and is then reflected in increased prices as long as there is demand.
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Post by mrclondon on Sept 28, 2016 14:35:33 GMT
As a small footnote to my post yesterday which mentioned the vast Nine Elms development, today's news from Apple is further evidence of the doomsayers predictions for that development being so far wide ofs the mark as to be laughable. "Apple is to move its UK headquarters to Battersea Power Station in a major boost for the £8bn regeneration of the Grade-II listed building – and for London following the EU referendum. The technology giant has agreed to take 500,000 sq ft of office space across six floors in the central boiler house of the power station. It will move 1,400 Apple employees into the building in 2021 from its other London offices." from www.theguardian.com/uk-news/2016/sep/28/apple-moves-british-hq-into-battersea-power-station-boiler-room |
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Post by propman on Sept 29, 2016 7:14:54 GMT
In London the reason House prices are relatively low is that they are a small component of the higher priced districts while being the majority of Oxford throughout the city.
Re HNWI, I agree, and in London there are a much higher proportion of "cash" (ie non-mortgaged) buyers who are presumably mainly in this category by most definitions. However London and other world cities have a significant largely disconnected component of ultra-HNWI. Other than perhaps distorting the market by sucking developers capital into this "Prime" market (and then mainly niche operators rather than the scale house builders), while there may be an impact on the districts that are not quite in this band and penthouses in river or other prime locations outside, the impact is swamped by affordability issues elsewhere. As a result, the Prime market has been less correlated with the remainder of London housing than the rest of London market is with the South-East and other commuter locations. It is more correlated with prime New York and other prime locations in world cities when compared in a common currency.
- PM
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