It seems like the perfect storm. Changing geopolitics, a recent oil crash, cleaning up corruption in China and a halt to the US economic policy of quantitative easing are all likely to tighten up capital inflows into the high end property market in London.
The frosting relations with Russia over the on-going crisis in Ukraine, shows no signs of abating. There have been rumblings from Washington about ratcheting up the sanctions on Russia, a move likely to make Russian Tycoons run for the bunkers. Meanwhile, in an attempt to halt the relentless slide of the Russian ruble, which has been in free fall since OPEC's decision to keep the oil taps open, the Kremlin is contemplating imposing capital controls. So, that translates to a cut in Russian capital inflows finding their way into UK properties, particularly high end London properties.
Then there’s the recent crash in oil prices, which suddenly means Middle Eastern oil elites have less big ones to slosh in high end London properties.
With civil discontent growing in the region amongst a large youth population, the Saudi Government may be forced to step up spending on bred and circus programs, leaving less funds for foreign acquisitions at a time when revenue has declined due to recent sharp falls in oil price.
Over in Asia, China's assault on corruption also means less funds from bent Chinese officials being funnelled into high end properties.
Moreover, the winding down, for now, of US quantitative easing means there is also likely to be less hot money flowing in from across the pound.
Then there’s the political factor which seems to be a heads I win, tails you lose scenario for potential buyers of high end property in London - it's a bet they can't win. Would Labour impose a Mansion tax if they were to win the elections? Alternatively, if the Conservative Party were to retain power, what would happen if they don't get their way curbing EU immigration? Would the UK decide to go it alone and turn their back on the EU? Would that then trigger a run on the pound sterling?
Who would want to invest a fortune in an asset if it’s likely to be worth, say thirty percent less sometime in the future because the local currency has just taken a nosedive.
So in this climate of political wilderness, with money tightening up, are the real estate agents feeling the squeeze and registering falls?
According to a report from City AM – citing statistics from Halifax and Britain’s ONS – since 2009 certain sectors of the British property market have fallen by as much as 20% (most of Scotland and Wales and parts of northern and south-western England) while others (in pockets of central London) have risen by as much as 61%.
But when compared to average wages, the current property prices give you vertigo. Let's put it into perspective.
The median UK wage is £22,044. This sum of money would currently buy 2 square meters of real estate in the plushest London boroughs of Kensington or Chelsea. Spreading out from the centre to Brent, Merton, Greenwich or Waltham Forest the same sum will yield slightly more space at between 5 and 6 square meters. On the other end of the spectrum – in parts of Wales, such as Merthyr Tydfil, the median wage would acquire 24 meters squared.
Central London has generally seen a rise in prices of between 40% and 60% in the last six years. Southern England has mainly seen rises of between and 15% and 30%. Whereas south west England has seen declines of around 4% in the same timeframe – with West Devon losing 13% of its property values.
In Wales there have been modest declines in some areas (1 -5%) and more severe in others (down 10% in Swansea) with some others showing a rise in price. Most of northern England has seen declines in price or in some clusters such as around Manchester or York seeing slight rises.
Even mainstream is putting the cat among the pigeons, talking about properties with asking prices ten times greater than the median wage and young people being forced to move out of London in droves.
I smell property bubble trouble and a super prime super pop in the high end property market, in other words this might be a shorters delight.
High end properties, high end real estate agents, and lenders financing the bubble are all primed to fall with real gusto moving forward.
All that “hot money” squandered in a bubble and you end up with a phoney economy that makes no real products, that employs people on zero hour contracts, that exports little and imports everything because it makes nothing. Building sandcastles in the sand, boom, bust, boom, bang....!
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