Should We Worry About The Foreign Investment In Real Estate London?

By the time you finish reading this article about the foreign investment in the real estate market in London, somebody from China, Germany, or India would have bought a property in London. You will be amazed to know that local real estate market has been so much dominated by foreign investors that experts blame them for the so-called “disproportionate rise” in the prices of good properties. They feel that the prices that were earlier well in control became out of control just because foreign investment stepped in. Some people called it so-called ‘social injustice’.

Why are overseas investors so much eager to buy properties in London?

Well, the list of countries that foreign investors belong to is pretty long, but the lion’s share comes from China.  People feel that the investment budgets of China will become double by 2020. There are several triggering factors behind the surge. They invest with the hopes of good Return on Investment (ROI).  Since the majority of the parents in China aspire to send their kids to the US for higher studies, they want to own a property there. Since London has always been the “safe haven” for investors, nobody is hesitated in investing.


English: The City of London skyline as viewed ...
English: The City of London skyline as viewed toward the north-west from the top floor viewing platform of London City Hall on the southern side of the Thames. In the foreground: Dixie Queen and Millennium Time at Tower Millennium Pier. This is a 5 segment panoramic image taken by myself with a Canon 5D and 24-105mm f/4L IS lens. (Photo credit: Wikipedia)

Is it true that local people are moving to other cities due to foreign investment?

Many people feel that local investors (or “native investors”) are forced to move beyond the periphery of London because it is impossible to compete with the foreign investors. Since foreign investors have deep pockets, they won’t think twice before buying a property at exorbitant rates. Hence, the local investors are moved to the suburban areas or peripheral areas where property prices were distinctly low. Manchester and Liverpool are few examples.

Heavy stamp duty bill impacts local investors badly

Surveys and reports show that properties in central London have become quite expensive after the increase in the stamp duty. They have reached beyond the paying capacity of local investors. The worst affected areas are the central London Boroughs such as Chelsea or Kensington. However, properties at the fringe of London were not affected much. Rather, they showed a consistent surge at the rate of 20 percent per year.

Properties that are within a commutable distance from the central part of London are always lucrative and appealing. People prefer properties that are at 20 to 30 minutes away from the main city. Interestingly, these are the areas that have been on the radar of foreign investors, particularly Chinese investors. As the projected metro link which would be cutting across the capital (west to east) is expected to be launched in 2018, rates would reach sky high for sure.

Foreign investors have started investing in alternate sectors. Student housing is an example. As cap rate are compressing, high yielding opportunities are preferred.

As Scotland also becomes a major hotspot of foreign investment other than England, it becomes a lucrative alternative for London. As of now, there are very few properties in Scotland which are owned by China, but the number will boost in the coming years.