The international buyers market in London
Updated: Nov 17, 2022
For decades, foreign buyers have long looked to the UK as a solid destination to invest in.
Despite uncertainties presented by COVID-19 and Brexit, overseas investors from around the world remain optimistic and continue to show interest in the UK market.
It’s worth noting that whilst the appetite is in place for good quality stock, this in part, has been tempered by the constraints imposed by the UK Governments Proceeds of Crime Act 2022 (POCA) and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations s 2017 (the Regulations).
Regions across the country offer strong potential for capital appreciation as well as rental income, and high demand, a shortfall in supply, strong yields and attractive prices is keeping the UK on the map as an international investment hotspot.
While the end of the stamp duty holiday in 2021 (which also applied to overseas investors) may deter some, a strong market performance, future growth prospects and the low pound, means that investing in a UK property has many advantages.
Let’s look at what makes the UK an appealing property investment destination and give you answers to some of the key questions foreign investors may have before buying an investment property anywhere in the UK.
Is Buying Property in the UK a Good Investment?
In the recent past, The UK experienced a drop in the real estate market and many areas presented lower-than-usual property prices where savvy investors made substantial gains. At the same time, the housing market forecast looks good.
In 2021, house price growth was at 11.3%, 2021 was the strongest calendar year for price growth since before the Global Financial Crisis of 2008.
The number of homes in England and Wales owned by overseas buyers has almost tripled in the last decade as residents from tax havens flooded into the UK housing market, fuelling concerns that wealthy offshore investors are pricing out locals; this dynamic is not new.
Certain parts of London have seen a gravitational pull by specific nationalities, favoured on architecture, social scenes, and educational needs.
The starter gun fired back in the '70's. The price of oil doubled in 1973 and had quadrupled by early 1974. The Middle East got hold of their money and we witnessed an extraordinary buying spree. That spree was replicated in the next few decades by buyers from Russia, after the fall of the Soviet Union in 1991, and China, after its rapid economic growth in the 2000s. An ongoing buy-to-let boom helped fuel the merciless climb in house prices, and all the while, the very nature of wealth was changing. Back in the day, in the 70s and 80s, somebody worth £10m or £20m was considered unbelievably wealthy. Today, Prime Central London (PCL) doesn’t bat an eyelid as these figures. International home buyers have predominantly focused on London as their favoured location when buying property. The super-rich are now dealing in nine figure sums.
There is limited official data on the subject but an analysis by the Centre for Public Data, a non-profit organisation, showed the increasing presence of overseas buyers in the UK market.
Overseas ownership of property is a contentious and murky issue.
The analysis will do little to ease concerns that foreign buyers are a factor in pushing up prices. UK house prices have risen from an average of £167,500 at the start of 2010 to £264,000 in August of this year, according to official data. Close to 250,000 residential properties in England and Wales are registered to individuals based overseas, amounting to roughly 1% of total housing stock, up from less than 88,000 homes in 2010, according to CFPD, which used freedom of information requests to HM Land Registry to collate the analysis.
Two-thirds of overseas purchases come from buyers based in just a dozen countries. Hong Kong is the single largest source of buyers, with 23,524 homes in England and Wales owned by residents of the city — a sharp increase from 2,170 homes in 2010. Singapore and Malaysian buyers also feature prominently on the list. Crown dependencies and tax havens, including Jersey, Guernsey, the Isle of Man, and the British Virgin Islands, are other significant origins of buyers. Residents of those four territories alone own close to 50,000 homes in England and Wales.
The commercial investment sector has seen are far greater number of high value fiscal forays into office trophy assets. The profile of these buyers is complex and varied. There are seven main landlords of London property: institutions, property developers, private investors, corporations, landed estates, public bodies, and overseas investors.
Some of the biggest landlords in London are institutional investors.
This includes everything from banks and insurers to pension and hedge funds...Aviva, Legal & General, AXA etc. A prime example of property owned by an institution is Twenty-two Bishopsgate. Twenty-two Bishopsgate was sold to AXA in 2015 for a sizeable £300 million. Twenty-two Bishopsgate is by no means alone in AXA’s commercial property portfolio. Other well-known past investments have included the 60 Holborn Viaduct building, let to Amazon, and Google’s King’s Cross office.
Other leading institutional investors include Aviva, who last year owned just under 9 million sq. ft of property in London, and Legal & General Group, who owned just under 7 million. Many London landowners are traditional property companies (Prop Cos), or Real Estate Investment Trusts (REITs – companies that own, and often operate, income-producing real estate). The most prevalent of these in the UK include Capital, Canary Wharf Group, British Land, and Landsec. Another is Derwent, who own a portfolio of 5.5 million sq. ft of commercial real estate, primarily in Central London, valued in June 2018 at £5 billion. This makes them the largest London-focused real estate investment trust. Within the private sector, arguably the most well-known office building in London, The Gherkin, is owned by Brazilian billionaire Joseph Safra, who paid a huge £726m for the building in 2014. At the time, Safra was ranked the world’s second-richest banker, with a personal fortune close to $15bn, according to Forbes. Whilst £700 million may seem a lot, the Gherkin was (and still is) considered revolutionary in terms of its architecture, having raked in several awards: The Stirling Prize, London Region Award, and the Emporis Skyscraper Award.
However, the biggest investor in recent years to the London market has been the Qatari backed sovereign wealth fund. Qatar owns swathes of the Canary Wharf financial district through its majority holding in Songbird Estates plc.
When Barclays was in trouble at the height of the banking turmoil, the Qatar Investment Authority (QIA) emerged as a white knight investor and became the biggest shareholder. Over at Stratford stand the buildings of the Olympic Village, QIA ownership.
Sainsbury's, they have a 21.8% stake in Britain’s second largest supermarket group, the famous London department store Harrods was purchased from Egyptian-born businessman Mohamed al-Fayed in 2010 in a deal reported to be worth around 1.5 billion pounds, Heathrow Airport: The QIA is part of a consortium that owns Britain's biggest airport, along with Ferrovial FER.MC, China Investment Corp and others. Canary Wharf: A QIA-led consortium purchased the owner of London’s Canary Wharf business district in 2015 for $4 billion.
It owns a 95% stake in The Shard, is busy converting the US Embassy on London's Grosvenor Square into a luxury hotel, and homes at the former Chelsea Barracks. Another unit of the QIA, Qatar Holding, owns a string of hotels in London - not just any old hotels, but Claridge's, the Berkeley and the Connaught, as well as the Intercontinental in Park Lane, through a 64% stake in Coroin, the holding company which owns the Maybourne Hotel Group.
The increase in overseas buyers has in part been influenced by the stability of bricks and mortar in the U.K., a fair legal system and good education. London remains the main target of investors from abroad. "An Englishmen’s home is his castle" has rubbed off on to the non-domestic market.
In the City of Westminster alone, more than 12,000 residential properties are in overseas ownership. Less-affluent boroughs such as Tower Hamlets, Newham and Lambeth have also had steep rises.
Overseas ownership has also soared in cities such as Liverpool and Manchester, which have experienced high rates of new development over the past 10 years. In Liverpool, it has increased fourfold since 2010, with close to 8,000 homes now registered to individuals based overseas. Major new construction projects in those areas are likely to be a factor in the high demand levels from overseas buyers, who have historically favoured new-build homes. An increase in overseas buyers is likely to further skew development towards high-end flats. A tax surcharge on overseas buyers hasn't had the desired impact by some in reducing or at least slowing the rate in capital growth within the real estate markets.
While the United Kingdom property prices remain relatively affordable, foreign investors should be mindful that property rates are considerably higher in London and notably central London locations such as Chelsea, Knightsbridge, Mayfair, Belgravia, and The City.
THE BIG SALES
When it was completed in 2010, One Hyde Park in Knightsbridge wasn’t just marginally more expensive than other blocks in the capital, it was in a different league.
The first 45 flats sold went for an average of more than £20m each, with one penthouse selling to Ukraine’s wealthiest man for £136m, by far the most expensive flat ever sold in the UK at the time. The development continues to be a byword for opulence and excess — as well as a lightning rod for anger about London’s unequal housing market.
Earlier this year, a flat in One Hyde Park sold for £111m, before stamp duty costs. Another, a penthouse owned by Nick Candy himself, is currently being marketed privately for £175m. Christian Candy sold his luxury property just west of London for around £ 125m. This is one of the biggest housing transactions of the year.
In 210 the Chinese property tycoon Cheung Chung-kiu had agreed to buy a 45 bedroom mansion overlooking Hyde Park in London for over £200m. The seven-storey property was built as four grand family homes before being converted into one vast residence in the 1980s. The previous owner had been Crown Prince Sultan bin Abdul-Aziz of Saudi Arabia who died in 2011. It has also been home to the billionaire businessman Rafic Hariri, who twice served as Lebanon’s prime minister.
Cheung Chung-kiu had also acquired the “Cheesegrater” for £1.15bn, in the City.
The torrent of cash entering the city’s property market was still so great in 2014 that Boris Johnson, at the time London mayor, announced: “London is to billionaires what the jungles of Sumatra are to the orang-utan. It is their natural habitat.”
While trade in the prime market has been kept stable due to a lack of stock, at the very top end prices have continued to increase as tastes have become more refined. The most prestigious flats can trade for close to £10,000 a square foot, such as Lodha’s No 1 Grosvenor Square development, the Peninsula on Hyde Park Corner and Chelsea Barracks. Another which might be the Glebe, an eight-home development in Chelsea that has been compared to One Hyde Park. There are parallels in the pricing — the penthouse of the Glebe is being marketed for close to £100m.
Britain’s highest ever property stamp duty rate will deter investment in London at a time when it needs to “sell” itself more than ever as a post-Brexit global city, property advisers have warned.
The ex-Chancellor Rishi Sunak confirmed on a Budget Day that a two per cent surcharge will be added to the tax burden for foreigners buying a home in Britain.
For investment or second home properties worth more than £1.5 million that took the top rate up to a record 17 per cent from April 1.
It was the first time that a property tax in Britain has singled out overseas buyers and is one of the highest marginal rates on property transactions in the world.
The extra tax rate was first mooted as long ago at the 2018 Budget in response to concerns that wealthy “buy to leave” foreigners were snapping huge swathes of the capital’s most desirable areas leading to deserted “lights out London” neighbourhoods.
The “foreigner tax” will add hundreds of thousands to the tax bill for snapping up London’s biggest mansions. The bill for a £10 million home will rise by £215,000 from £1,398,750, a rate of 14 per cent, to £1,613,750, or 16.1 per cent once the stamp duty holiday expires at the end of June.
Around half of all purchases above £10 million in London are made by non-resident foreigners.
Billionaire US hedge fund manager Ken Griffin’s purchase of a mansion overlooking The Mall for £95 million in 2019.
The new tax rate comes into force after a glut of expensive properties worth £5 million or more changed hands in recent months to meet the March 31 deadline.
According to figures from estate agents there were 51 sales at this level in London in January and February, the highest figure for the first two months of any year since 2014, London’s foreign-buyer contingent owned £59.3 billion (US$78.1 billion) worth of property in the capital during 2021, an uptick from 2020 despite widespread travel restrictions, which only began to lift at the tail end of the year, according to a report Wednesday from London-based lettings and estate agent Benham and Reeves.
The total value of homes owned by overseas residents in the city last year was £6 billion more than 2020, and equated to 85,451 properties in foreign hands, 4% more than the 81,872 the year before.
Values are expected to jump 23.9% by 2026, which would see prime central London prices return to their 2014 peak. This year alone, values are expected to rise 8%.
When looking at the city’s boroughs, The City of Westminster a swath of central London including high-end neighbourhoods such as Belgravia, Mayfair, and St. John’s Wood is home to a lion’s share of foreign residents, according to the data.
Upward of 12,000 homes in the borough were registered to owners with overseas addresses in 2021, a figure that equates to an estimated nearly £12.5 billion in real estate value—£2 billion more than in 2020.
However, there has been a recent trend, the with spiralling cost of ownership for foreign buyers, and the additional tax hikes, for intern nationals to consider other destinations.
Many Russians who once favoured London as their first-choice location are now looking further afield. Dubai is one suck locations for Oligarchs and other nationals.
Dubai’s residential and ultra-luxury markets have continued their upward trajectory in 2022, with demand from international buyers resulting in high competition and several record breaking sales. The total transaction volume from January to March 2022 was the highest Q1 to date, with sales values of over USD 15.3 billion and over 20,000 transactions. Apartment sales accounted for most of these transactions. Off-plan sales (new developments) were up nearly 95% and secondary market sales (resales) were up nearly 75%. Compared to Q1 2021, there were 77% more apartments, and 58% more villas were sold. This overall upward trend in Dubai’s property rental and sales prices can be attributed to the emirate's efficient policies, a strong recovery from the pandemic, as well as visa reforms that are contributing to Dubai's popularity as a long-term residence.
So, if London is to continue to compete with other cities in the luxury high-end property market some are arguing for an adjustment in tax and AML regulations.
Whilst the Conservative and Unionist Party decide on who their next leader will be, and the next Prime Minister, the jury is out as to whether any reforms will be on offer for the international buyers in London.