According to research carried out by Future of London and The Smith Institute overseas investors are pricing local people out of the market. As a result this could cause a housing bubble which will worsen the condition of the property market.
The housing bubble will be caused by the sudden surge in overseas investors buying properties in London. This will then have a domino effect on other industries such as those who sell furniture as many homes are being left empty and the landlord insurance industry as the homes aren’t being rented out.
In the last year the amount of money that overseas buyers are investing has more than doubled to £5 billion. This figure is higher than the budget for affordable housing for four years by five times. It is also one third of the loans taken out by property owners to purchase homes in London.
The report was carried out by Andrew Heywood and he looked in to London and the private housing market here and analysed the effects overseas buyers are having on the market.
He reported that 60 per cent of homes that are being built in London are being purchased by overseas investors despite the interest rates on prime properties. Once the properties are purchased, many are left empty as the majority of the buyers are from the Middle East and are solely being used as a vehicle to protect their money and make a profit in the long run.
This could, in turn create a housing bubble. When overseas buyers are looking for an investment and local people are looking for a home this causes competition which at the moment is not healthy for the market. Those looking for an investment are often much more willing to pay more for their asset than those looking to create a home. As a result the prime properties get sold for high properties to overseas buyers leaving them empty till they are cashed in. This means the properties that are left are priced higher as eventually sellers know they will be sold. This then decreases the supply in the market again forcing prices up and those who are looking for a home can no longer afford a property.
“London faces a significant housing challenge in the years ahead. If the stated aims of the Mayor to promote more homes and provide assistance to first time buyers are to be met, then more attention must be devoted to the dynamics of the private housing market.
“Within the focus, the most urgent task is to understand and develop a strategy in relation to overseas investment. London practitioners must do more to boost their knowledge of the scale, distribution and sources of overseas investment into the capital, and the impact that this has on prices, affordability and overall housing supply.”