UK property market receives over £3.3b foreign capital annually

London: An estimated foreign capital of over £3.3 billion (RM16.3 billion) is being injected into the London property market annually, according to a report by Savills. In addition to that, a further £0.4 billion is expected to fuel its newly-built stock. The foreign wealth flowing into the London residential market annually is enough to buy 18,561 UK homes, the report says quoting the Communities and Local Government's data on average UK house value.

About £2.7 billion of new foreign funds target the resale market in prime central areas such as Mayfair to Kensington and Notting Hill to Chelsea. In 2010, overseas buyers were responsible for buying 28% of all resale properties across London, out of which, 54% by value in the prime central London area for over £5 million.

According to the World in London report by Savills research, an estimated £16.5 billion will have been invested over the five-year period by the end of 2011. The report stated that the cash injection means that prime London values now move more in line with other global real estate, commodities and investment markets than domestic UK housing markets.

The highest spenders in the past five years have been buyers from Eastern Europe and Russia and ex Soviet Union (CIS) countries, responsible for an average spending of £6.2 million across all prime London. The Middle Eastern and North African buyers saw an average of £4 million spent. Savills have reportedly seen the emergence of lower-key individuals coming to work in the city and buying smaller-budget and investment properties.

The biggest increase amongst Western European buyers over the past year came from the southern countries such as Greece, Spain and Italy. UK buyers accounted for half of all prime central London purchases, or 40% by value, with the average UK buyer spending at £1.2 million.

Head of Savills residential research Yolande Barnes said as new global economies emerge, other global cities will compete for their custom. "China, Asia Pacific, Latin American and even Africa all have huge potential as future sources of inward investment to London real estate but London will have to continue providing an international product to appeal to them if it is to continue attracting their currency. We think the already established preference of buyers from the Asian subcontinent for London will mean that Indians will be among the most important buyers from the emerging countries in the future," Barnes said.

Barnes anticipates that London will continue to attract overseas buyers in the foreseeable future, especially with the eyes on the world on the London Olympics next year. "This diversity of economies from which these buyers originate and of their motivations for purchase, mean that there will nearly always be an overseas market for London property for as long as London remains a major global city.

"While a combination of rising sterling and falling commodity prices might appear to be a particular risk for prime London real estate prices, these tend to run counter-cyclical to domestically-generated wealth from UK stock markets, economic growth, IPOs, etc. This means that domestically-generated wealth will tend to take over when new overseas money is withheld and the fact that international investors have become holders rather than sellers of their real estate stock (thereby limiting new supply) will serve to underpin prime London values over a longer term," Barnes concluded.