A new dawn

After an eventful couple of years on both the world and local stages, life on planet earth shows no plans to take it easy in the next two. One thing is for sure though, the world is getting smaller.

The Office of National Statistics stated last year that natural growth – more births than deaths – and net migration helped push the estimated UK population to a record 65.1 million in 2015. And that figure will rise to 70 million within the next decade, a 7% increase.

Conversely, as the population rises, the world continues to shrink thanks to a combination of the internet creating an ‘always on’ communication environment and cheaper international travel making for easy hops around the globe.
And despite a tumultuous period, both socially and politically, the UK, and specifically London, is still a highly desirable destination to live, work and practice business, and we expect the property market in 2018 will reflect this.

The new normal
Much of the interest and subsequent investment is flowing from the East to West down the new ‘Silk Road’ as wealthy buyers from China purchase property in London ahead of a move to the capital. It’s seen as an attractive place to park your cash, safe and with a potential upside.

In an article in The Guardian, Victor Li, a director of international project marketing for the US real estate giant CBRE, who works in China with wealthy buyers looking to enter the London market, discussed the popularity.

“China has a population of 1.4 billion. If you target only 1% of China’s population, that’s 14 million people – so it’s already almost two Londons.” Li also estimates that only 3% of the Chinese market has been engaged, meaning the already huge market will grow exponentially over the next decade. One estimate from 2014 had Chinese outbound investment into residential and commercial property at more than £38bn.

But why is London so popular? Charles Pittar, chief executive of Juwai.com, a website that pairs mainland Chinese buyers with property developers in places such as the UK, the US and Australia, says that while investment is often for security (protecting investors’ money outside of China and from the devaluation of the Yuan), it’s also just as much for more mundane and human reasons: investment, lifestyle, emigration, education and status.

“Some people are buying for their family to use it,” says Li, “some are buying to diversify, some are buying because they want to own a property for investment – and some people are buying for prestige, to say: ‘I own a piece of property in London.’” And it’s not just prestige properties in the centre of the city that are popular.

Infrastructure plans mean that more and more outlying areas are heating up. Especially those with higher rental yield. “The commuter area – anything within a 20-30-minute travel time is hot,” says Jonathan Gordon, a director at IP Global, a Hong Kong property investment firm promoting projects in Ilford and Croydon and has previously invested in Slough.

And the £14.8 billion Crossrail line which will run across the city when it opens this year will further open the capital.

However, there are concerns from many parties that the investment is at the expense of local buyers, especially in the less prestige properties away from the centre of the city. While the UK doesn’t currently have the strict rules seen in Australia and New Zealand around foreign property investment, it has an increasingly vocal group of supporters who are raising the issue with a public which might be unawares.

London Mayor, Sadiq Kahn is a torch-bearer on the matter, publicly decrying developers who market new builds to foreign investors before the UK. “There is no point in building homes if they are bought by investors in the Middle East and Asia,” he said in May 2016, “I don’t want homes being left empty. I don’t want us to be the world’s capital for money laundering. I want to give first dibs to Londoners.” Is he right or is this just the inevitable tide of globalisation, time will tell.

The Market in 2018
The process of Brexit, along with the more natural movements of the market look set to make for a slower start to the year, but with plenty of light on the horizon. The very lack of supply, that figures including Mayor Kahn are focused on, will mean that the market will remain solid, if unexciting going into the next 12 to 18 months.

After seeing growth of 7.4% in 2016 in the South East, the Office of National Statistics pegs growth in 2017 at 1.5%, rising to 2.5% in 2018 and 4% in 2019. Modest growth, sure, but growth. Meanwhile London is starting to see competition from cities such as Manchester, Leeds and Birmingham where a combination of universities, cheaper stock and bigger rental yields are luring foreign buyers and domestic buyers who are priced out of the London market.

In London supply and demand is further being affected by salaries that are failing to keep up with house prices. People are staying put for longer, and at the lower end of the market, people are remaining in the rental market. “Economic conditions for households will remain challenging over the next year as inflation eats into budgets and interest rates begin to rise,” says Countrywide’s
chief economist, Fionnuala Earley. “But we expect the UK economy to recover and wage growth to pick up in response to global growth.”

The slower rate of growth will mean a different market in the capital. Rumblings from the banking community about moving headquarters to the continent are concerning, it would be a larger demographic moving out of the city, along with their investments.

But what is often overlooked is that ‘Brand Britain’ endures, and London is and will always be a desirable place to live and work. This is illustrated well with the investment from the tech world. Facebook, Google and Apple (the wealthiest companies in the world) will open expansive new offices in the next few years in Soho, King’s Cross and Battersea respectively. They do not make these kinds of investments without doing their due diligence.

So perhaps a new dawn is in store for Britain? After all they say ‘follow the smart money’. Chances are if you’re reading this you’re already in the right place to invest your money and turn a house into a home.