Caught in a Trap
International Investors Lose Appetite
In 2016, the proportion of International buyers in London fell back to 22% in Q4, from 29% in Q3.
|Click to download as PDF|
International buyers lost their appetite for London property in Q4 2016, which was driven by falls in Prime Central London (PCL) where the proportion of international buyers fell from 60% in Q3 2016 to 41% in Q4. After the exchange rate induced bulge in investing in London following the referendum, international buyers are now considering the wider risks facing the UK and global economy and the potential for further price growth.
The fall in international buyers was also driven by fewer EU, Middle Eastern, Chinese and Hong Kong buyers. Although EU buyers still dominate international sales in the capital, their presence fell back in the last quarter, from 12% in Q3 to 8% in Q4 2016. Middle Eastern buyers make up the second highest proportion, accounting for 3% of buyers in Q4 2016. But in PCL, international buyers are much more dominant. In Q4 2016, EU and Middle Eastern buyers represented 10% and 5% of all buyers in PCL respectively, down from 11% and 12% compared to Q3.
|Click to enlarge.|
But the Central London market remains more stable. International buyers continued to account for 21% of buyers in Central London in Q4 2016, unchanged from Q3 2016. In fact, the proportion of sales to EU and Chinese buyers rose in Central London by five and two percent between Q3 and Q4 2016. Market turmoil in China may have cut into buyers’ ability to buy the most expensive homes, which may help explain the shift from PCL into Central London to get more for their money.
Is it all because of Brexit? Although Brexit has led to questions about the capacity for future price growth in London, there are other factors at play. Sanctions on Russia have limited the flow of outbound money and buyers from oil-producing countries have also been hit by lower oil prices. China imposed stricter controls on outbound capital at the start of this year, which is likely to dampen their buying activity in 2017. However currency movements are often the biggest factor: demand from foreign buyers over the year ahead is likely to be determined by exchange rate movements, and it’s unlikely to be an easy ride.