Market Insight - November 2016
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The Global Capital

Going Continental?
Currency movements have attracted a bigger proportion of international buyers to London, despite Brexit, but they are choosing carefully.

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There is a misconception that London’s housing market is almost entirely supported by overseas buyers. That has never been the case but that doesn’t mean that international buyers don’t have an important part to play, especially in financing new build homes. Hence the concern that the UK’s decision to leave the EU would see overseas investors turning their back on the London housing market. But that hasn’t happened. Domestic buyers still account for over 70 per cent of activity in London, but the proportion of international buyers actually increased in the third quarter of this year to 29 per cent up from 23 per cent in Q2 2016.

That increase could be a combination of weakening house price growth expectations in the capital and uncertainty prior to the referendum depressing activity in Q2, followed by the fall in sterling which offered a huge discount to international buyers, significantly cushioning those risk and bringing them back to the market. The proportion of EU buyers increased by one percentage point in the quarter from 11 per cent to 12 per cent. The proportion of buyers from the USA and Middle East increased and now stand at 2 per cent and 4 per cent respectively.

While currency movements have made things cheaper it seems that international buyers are still being canny. Looking at separate areas within London shows an interesting picture. In the suburbs and super suburbs (areas like Hampstead, Richmond and Esher), the proportion of overseas buyers increased by four percentage points to 21 per cent in Q3 2016 compared with last quarter. Buyers from the EU made up 11 per cent of buyers, up from 6 per cent in Q2 but the proportion of Asian buyers fell back to 4 per cent from 6 per cent.

However the mix of buyers was different across other areas of the capital. In Central London, EU buyers lost interest and made up just 6 per cent of buyers, compared with 12 per cent in Q2. While the proportion of buyers from the USA increased to 6 per cent, up from just 1 per cent in Q2.

Unlike EU buyers, Asian buyers switched their allegiance to property closer to the centre of the city. In central London the proportion of Asian buyers increased to 4 per cent in Q3 2016 up from 2 per cent in the previous quarter. But in Prime Central London their presence increased from 9 per cent in Q2 to 12 per cent in Q3 2016 with the rises coming from Indian and Chinese buyers in particular.

Contrary to expectations, increased activity from EU buyers in Prime Central London did not materialise. EU buyers still make up 21 per cent of buyers in this part of the capital, but the proportion fell from 28 per cent in Q2 2016.Yet the overall proportion of international buyers in PCL increased - from 57 per cent to 60 per cent in the quarter showing that despite high prices and uncertainty about the UK’s economic and housing market outlook in the wake of the Referendum, overseas buyers still believe a property in the most expensive part of the capital is desirable.

Of course movements in Sterling have made a tremendous difference to the price that overseas buyers pay in their own currency. For example a Chinese buyer with 10 million Yuan could have bought a property in the UK for about £1 million. But since the fall in Sterling, without spending any more Yuan the same buyer could buy a UK property worth £1.2 million. 

Despite lower costs in their home currency, overseas buyers are still hunting bargains by looking for property where there is greater likelihood of capital gain, rather than property in the most expensive areas.

Click to enlarge.

  

 

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