What happens abroad affects regular Brits at home – more specifically, the price of the homes they wish to buy. Blame it on the stability of the UK economy.
For a number of years it has been well documented that rich Russians, Chinese, Saudis and others from outside the UK have been buying up pricy real estate in London. That has actually expanded to cities elsewhere in England. And with the outcome of the May 2015 elections, combined with continued instability abroad, that trend may not reverse itself for some time.
And it does affect ordinary citizens in the UK. Part of what drives up the cost of real estate throughout London has been the extreme degree to which the most expensive homes in Central London are sold to foreigners, almost all for cash seeking a safe, stable haven. In September 2014, The Telegraph reported that 20% of buyers in Westminster, Kensington and the City of London were sold to people from Russia, Italy, France and the Middle East. Among the top boroughs favoured by foreign buyers were Camden, Islington and Hammersmith and Fulham.
Most maddening to native residents of Great Britain is the report that 60,000 of these homes in London sit empty. Few of those buyers actually live here as they hold those properties as financial assets. One estate agent told The Telegraph that some developers are specifically building at very high luxury levels specifically to attract these buyers; the average price for prime property in Central London reached £4.7 million as of the middle of 2014.
At mid-price levels at city’s edge and elsewhere in England and Wales, developers are building homes that are affordable to the middle class. This helps fill the yawning gap of the UK’s housing shortage, particularly where homes are needed to house families near emerging companies outside London. That said, The Daily Mail reported in October 2014, “some Chinese buyers who can pay in cash are touring northern towns to find investment opportunities. Experts fear this trend will force up prices for ordinary families.”
In the run-up to the May election, the Labour party spoke of a mansion tax that might diminish foreign interest in buying in the UK. But with that party’s loss, the idea of this type of tax was trounced as well. Estate agents who work with overseas buyers reported an immediate surge of interest on the very night the election results were reported.
Global events play a role in this. Sanctions against the Russians for their aggressive tactics in Crimea and the Ukraine have had an effect. International sanctions against the country in 2014 have challenged the rouble, making those purchasers more expensive to the oligarchs and “medium rich,” who, on the margins, might retract their buying.
However, many argue it should be in commercial property or residential development instead of finished residences that go unoccupied. The Cameron government will undoubtedly wrestle with this question in the years to come.
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