Jun. 18, 2009
Britain’s property market has been a disaster in the last one and a half years. After five years of exploding prices and then followed by the credit crunch, global recession and an overall tightening of the mortgage market, the real estate market crashed.
Most regions across the UK have been affected. Some areas have been hit extremely hard. Average prices in Belfast, for example, are down 37% over the past year, according to Nationwide, a large UK building society. London is affected as well, though not that badly: Prices for flats in London have dropped by around 25%. The Knight Frank Prime Central London Index records a year on year fall of 22.6% since April 2008.
There is also an impact due to the exodus of thousands of “non-doms” (wealthy foreign residents who enjoy a preferential tax status in the UK) from London due to the new non-dom levy by the Labour government. The real estate agent Knight Frank states that up to 31% of non-doms and 25% of HNWIs (high net worth individuals) are considering leaving London. In addition, the UK government has announced that it will increase the top tax bracket to 50%, which plays its part in driving out the high earners.
You might think that all these factors would make it easy to go bargain hunting for that nice London property that you have dreamt about all your life? Forget it – at least for now! The overall price decline in London has been arrested since April, where for the first time a small month-on-month rebound has been recorded. That trend has continued in May. Knight Frank says that “even the top end of the market (£10m+) is beginning to get busier with Russians, who have managed to retain their wealth, buying out the best locations as they are keen to move their cash to the UK.”
Overall, prices are still way above their long-term average. Bargain hunters will have difficulties in finding any property at rock bottom prices. In addition, the weak British Pound has, in the last 12 months, made it attractive for foreigners to target real estate in London. Therefore, the short-term outlook for London points to a stabilisation rather than a continuing crash. This confirms the old rule that long-term secure and attractive locations usually survive a real estate crisis with very little harm.
But this may not be the end of the story. It seems that the UK government is up to a few things to endanger the long-term health and attractiveness of London as a premium location for business and wealthy individuals. One recently published measure is a new code of conduct for senior financial executives, which is aimed at forcing bankers to pay more taxes and comply with the law, “not just in words but in spirit”. Rival financial centres like Zurich, Dubai and Singapore may yet have the last laugh. Eventually London property may get cheaper.