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Foreigners Buying Half of London New Homes Prop Up Building

By Neil Callanan - 2013-05-1

Bloomberg http://www.bloomberg.com/news/2013-05-09/foreigners-buy-half-of-london-new-homes-to-prop-up-development.html

Only one in seven foreign buyers of new London homes will live in the property and the remainder plan to rent them out, Chicago-based Jones Lang said, citing a survey of buyers. “Without international investors, most residential developments in London wouldn’t happen and the housing crisis would be even greater,” Challis said.

Very generous of them in the interim. They're funding more supply being built with developers. Meanwhile a squeeze on incomes, imo, little risk of wage inflation, leading to lower achievable rents for the investors eventually.

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I've observed similar. There's little for sale around here (Zone 4), but a considerable number of houses/flats have appeared for rent around the 2000pcm mark. The benefits cap takes hold in early July. I expect it will be a few months beyond that (to allow for forebearance and denial) before significant numbers give up on letting and switch to selling. Then just as things get interesting, help-to-buy will kick in during January 2014...

The LHA (housing benefit)cap has been around for a few months now. You are referring to the total benefit cap for jobless households. They are different things. Either way I would be very concerned about cashflow in my highly-leveraged London BTL portfolio right now!

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I think your numbers refer to the total benefit cap to jobless claimants, ie. the 40,000 is the number of unemployed claimants in the capital.

The numbers you require can be found here: DWP data on total housing benefit Claimants

Table 3. Total households claiming benefit claimants in Greater London, 841,000 of which 278,000 are in private tenancies. nd these figures are a couple of years out of date.

Here's another useful document from Shelter Breakdown by London Boroughs on Page 26

Thank you LL.

So, in all of London, all HB recipients: 840k, but 560k are in "Social Rent", which means Council and Housing Associations, and only 280k are in private rents.

And in inner London the numbers are 428k in total, 321k social, and only 105k in private rents. Mainly these - private and in inner London - will be affected by the cap, I think.

ToW

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So, in all of London, all HB recipients: 840k, but 560k are in "Social Rent", which means Council and Housing Associations, and only 280k are in private rents.

From 2011 census there were 3.27m households in London (http://data.london.gov.uk/datastorefiles/documents/2011-census-snapshot-households-and-families.pdf). That would mean over 25% of London households receiving HB.

A staggering figure. The taxpayer subsidising employers on a grand scale and making a generation of landlords rich. Something has gone very wrong.

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Very generous of them in the interim. They're funding more supply being built with developers. Meanwhile a squeeze on incomes, imo, little risk of wage inflation, leading to lower achievable rents for the investors eventually.

Without the voracious demand from international investors there would be less need of the supply. This demand skews the supply mix towards the types of property that Asian investors prefer i.e. waterfront high-rise. Which by the way is stealthily privatising views of prime sections of the river Thames.

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From 2011 census there were 3.27m households in London (http://data.london.gov.uk/datastorefiles/documents/2011-census-snapshot-households-and-families.pdf). That would mean over 25% of London households receiving HB.

A staggering figure. The taxpayer subsidising employers on a grand scale and making a generation of landlords rich. Something has gone very wrong.

It is indeed truly staggering. More so when you throw in tax credits, council tax credits etc. We effectively have an economy in London that pays £80K for a cleaning job. London will bear the brunt of welfare reforms and cuts to public services. It will be interesting to see if the "booming" London economy can survive now the rug is being pulled from the colossal public subsidy.

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Thank you LL.

So, in all of London, all HB recipients: 840k, but 560k are in "Social Rent", which means Council and Housing Associations, and only 280k are in private rents.

And in inner London the numbers are 428k in total, 321k social, and only 105k in private rents. Mainly these - private and in inner London - will be affected by the cap, I think.

ToW

lets take whole london figures as house price indices do not separate innner and out london so this means only 280k HB households are paying private landlords as the rest are in social housing.

From 2011 census there were 3.27m households in London (http://data.london.gov.uk/datastorefiles/documents/2011-census-snapshot-households-and-families.pdf). That would mean over 25% of London households receiving HB.

A staggering figure. The taxpayer subsidising employers on a grand scale and making a generation of landlords rich. Something has gone very wrong.

I'm not sure you are correct - 280k (from above) / 3.27M households = 8.5%

The impact of a rental crash from the HB cap only affects a potential maximum of 8.5% of london households and not all of these are over the 350/limit. Lets say 50% are (its a guess). so 4.25% of london is now vulnerable to the cap.

London is easily big and busy enough to absorb a 4.25% "crash" in rent.

Government has already done the sums and only a handful of landlords are going to be affected by the HB cut!

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From 2011 census there were 3.27m households in London (http://data.london.gov.uk/datastorefiles/documents/2011-census-snapshot-households-and-families.pdf). That would mean over 25% of London households receiving HB.

A staggering figure. The taxpayer subsidising employers on a grand scale and making a generation of landlords rich. Something has gone very wrong.

In some London boroughs over 40% of households are on housing benefit: http://www.standard.co.uk/news/40-of-london-families-on-housing-benefit-6750257.html

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In some London boroughs over 40% of households are on housing benefit: http://www.standard.co.uk/news/40-of-london-families-on-housing-benefit-6750257.html

It's all crazy.

And this article is from "02 November 2009"!

By now the Conservatives have been in power for 3 years, and were not able to reduce this bill.

When they tried to cap housing benefits the central government even suffered opposition from Boris Johnson, usually a right-wing pro-market politician, wanting to protect this "revenue" for London...

It's all crazy, distorted, perverted, self-destructive.

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lets take whole london figures as house price indices do not separate innner and out london so this means only 280k HB households are paying private landlords as the rest are in social housing.

I'm not sure you are correct - 280k (from above) / 3.27M households = 8.5%

The impact of a rental crash from the HB cap only affects a potential maximum of 8.5% of london households and not all of these are over the 350/limit. Lets say 50% are (its a guess). so 4.25% of london is now vulnerable to the cap.

London is easily big and busy enough to absorb a 4.25% "crash" in rent.

Government has already done the sums and only a handful of landlords are going to be affected by the HB cut!

Exactly, that is my concern as well.

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It's all crazy.

And this article is from "02 November 2009"!

By now the Conservatives have been in power for 3 years, and were not able to reduce this bill.

When they tried to cap housing benefits the central government even suffered opposition from Boris Johnson, usually a right-wing pro-market politician, wanting to protect this "revenue" for London...

It's all crazy, distorted, perverted, self-destructive.

The Tories don't like socialism, unless it benefits them. :angry:

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lets take whole london figures as house price indices do not separate innner and out london so this means only 280k HB households are paying private landlords as the rest are in social housing.

I'm not sure you are correct - 280k (from above) / 3.27M households = 8.5%

The impact of a rental crash from the HB cap only affects a potential maximum of 8.5% of london households and not all of these are over the 350/limit. Lets say 50% are (its a guess). so 4.25% of london is now vulnerable to the cap.

London is easily big and busy enough to absorb a 4.25% "crash" in rent.

Government has already done the sums and only a handful of landlords are going to be affected by the HB cut!

HB recipients = 840k. 840/3270 = 25.7%.

Not really interested in effects of any benefit caps on London landlords, although you clearly are. I don't expect them to make much difference.

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I'm still amazed that after 5 years of falling house prices ( in real terms ) the loonies in london are still bumping up prices and people are buying before they 'miss out'

I look at some of the asking prices round where my wife sold 2 years ago and it's insane, and with that insanity surely follows collapse.

The question is how and when ?

Will the banks deliberate collapse the bubble to cash in ?

Will people simply stop buying ( not many can be buying in reality ) ?

I don't see how it can go any higher and their will be some BIG losers at some point. it would seem London is different, it's got more idiots per square foot than anywhere else in the world.

Bubbles spell Troubles,

It is unbeliveable and surreal in London. It is buzzing with new residential developments, developments underway and sites being cleared for new projects, even sites that have been in limbo for a while. It could be 1999-2001 again.

Edited by Take Me Back To London!

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It is unbeliveable and surreal in London.

Unfortunately true. A 3 bed semi in my area went SSTC in literally three weeks of the board going up. Over 500k asking price.

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Unfortunately true. A 3 bed semi in my area went SSTC in literally three weeks of the board going up. Over 500k asking price.

Maybe that is why IG Index don't offer London House Price positions anymore as it became a one way bet.

Edited by Take Me Back To London!

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It is unbeliveable and surreal in London. It is buzzing with new residential developments, developments underway and sites being cleared for new projects, even sites that have been in limbo for a while. It could be 1999-2001 again.

At least the developments are a bit more attractive now and look like an architect may have been involved rather than a cut and paste job off a software program for engineers and accountants. The late 90s and early 2000s were real low points in mass UK architecture.

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Unfortunately true. A 3 bed semi in my area went SSTC in literally three weeks of the board going up. Over 500k asking price.

Around here nice places in that range are selling on the first open viewing day. I suspect people are stampeding before the hordes arrive next April with their 20% taxpayer money granted to them by that nice Mr. Osborne.

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David Smith the finance editor of The Sunday Times used to quote and regard his Skip Index, the number of builder's skips in his street, as a reliable indicator of the state of the economy. I have not read anything of his in years. I wonder what is the Skip Index at the moment?

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David Smith the finance editor of The Sunday Times used to quote and regard his Skip Index, the number of builder's skips in his street, as a reliable indicator of the state of the economy. I have not read anything of his in years. I wonder what is the Skip Index at the moment?

...when you can see more people rummaging around to see what they can salvage from the skip than people filling the skip. ;)

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Hello, first time poster but long-time lurker here. I've really enjoyed reading all your contributions to the discussion - hopefully I can add some further helpful insight, both anecdotal and from some more informed sources.

First the anecdotal:

I've lived in East London for 12 years now, moving between North Bow/Victoria Park, Dalston, and London Fields/Hackney. I've always rented since it suited my lifestyle, and always intended to purchase a property in my mid-thirties when I 'settled down' (I am now 34).

I've notice the area gentrify, and prices rise accordingly. I've accepted the price rises until recently, because the area has changed, and I feel they represented fair value (compared to say, West London). I love the area and have no wish to move away.

But now there is a problem. I earn a good salary, more than twice the London average, but about two years ago I found myself priced out of the area in terms of buying even a small 1 bed flat. So, there I am, sitting on a very decent salary and the money for a deposit, finding myself completely unable to purchase even a small property in a mediocre area. How can this possibly be sustainable?

And even worse, since the recession, the house prices around Hackney have not declined as expected, but risen dramatically. And now, I see crazy prices never even dreamed of before for the area - £1.7m for a 3 bed terrace. £965k for a two bed terraced cottage. £700k for an average looking two bed flat. JUST INSANE.

Now the more evidence-based:

I had a very insightful conversation with a good friend of mine who works as a fund manager at a major investment bank, and he was very open about the fact that institutional investors are starting to pull their money out of London property, as everyone 'on the inside' sees a huge bubble about to burst. The reasons are interesting.

Basically London property in prime locations (Chelsea, islington, clerkenwell, Kensington, notting hill, Camden, south bank) has been purchased in large quantities since the 2008 financial crisis by institutional investors and the super-rich... But largely not to rent out, let alone live in, but just because it was seen as a safe place to park money during the banking crisis.

What does this mean? Well, literally thousands upon thousands of prime flats/houses are just sat empty, purely held as a disposable asset (renting doesn't work for something designed to be sold at short notice).

This meant that the usual people who would buy such flats, like well paid bankers and lawyers, were forced to buy outside prime areas, because even they were priced out the market. This pushed up prices in other areas like Hackney, Vauxhall, Bow, Kentish Town, Ealing, Balham etc.... Then, the people who would normally have bought in those areas were priced out, and forced to look in places like Stratford, Acton, Walthamstow etc

The problem is this: at some point, likely very soon, as more attractive investment options become available (such as Spanish and Italian bonds) all those prime location properties, currently sitting empty, will need to be sold. And when that happens, it will be carnage - because the prices paid for those properties by institutional investors and the super-rich are totally beyond what even very well off people can afford, since they were caught in their own ever-inflating bubble.

Compounding this, you have the effect of the housing benefit cap, meaning that BTL landlords who bought in 2004-2007 will not longer be able to make a return, and will start trying to offload. It's a perfect storm.

Then, you have a price-crash wave that will move out from central London, as everyone tries to 'cash in' at the same time. Now, in past years, before the 2008 crash, City workers could pick up the slack with their fat bonuses. But there's a problem: 100,000 jobs have been lost in the city since 2008, a third of the total. And collective bonuses which totalled 12bn in 2007, total just 1.5bn this year. Basic salaries have not risen significantly to compensate for the vast majority. And besides, the average City worker earns 60-80k, not 1m as headlines would have you believe.

So there simply won't be enough buyers for anything like the number of prime properties which will be available. Which means: the bubble will burst, and it won't be a pretty sight (unless you don't own a property, in which case you'll be super smug).

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Hello, first time poster but long-time lurker here. I've really enjoyed reading all your contributions to the discussion - hopefully I can add some further helpful insight, both anecdotal and from some more informed sources.

First the anecdotal:

I've lived in East London for 12 years now, moving between North Bow/Victoria Park, Dalston, and London Fields/Hackney. I've always rented since it suited my lifestyle, and always intended to purchase a property in my mid-thirties when I 'settled down' (I am now 34).

I've notice the area gentrify, and prices rise accordingly. I've accepted the price rises until recently, because the area has changed, and I feel they represented fair value (compared to say, West London). I love the area and have no wish to move away.

But now there is a problem. I earn a good salary, more than twice the London average, but about two years ago I found myself priced out of the area in terms of buying even a small 1 bed flat. So, there I am, sitting on a very decent salary and the money for a deposit, finding myself completely unable to purchase even a small property in a mediocre area. How can this possibly be sustainable?

And even worse, since the recession, the house prices around Hackney have not declined as expected, but risen dramatically. And now, I see crazy prices never even dreamed of before for the area - £1.7m for a 3 bed terrace. £965k for a two bed terraced cottage. £700k for an average looking two bed flat. JUST INSANE.

Then, you have a price-crash wave that will move out from central London, as everyone tries to 'cash in' at the same time. Now, in past years, before the 2008 crash, City workers could pick up the slack with their fat bonuses. But there's a problem: 100,000 jobs have been lost in the city since 2008, a third of the total. And collective bonuses which totalled 12bn in 2007, total just 1.5bn this year. Basic salaries have not risen significantly to compensate for the vast majority. And besides, the average City worker earns 60-80k, not 1m as headlines would have you believe.

So there simply won't be enough buyers for anything like the number of prime properties which will be available. Which means: the bubble will burst, and it won't be a pretty sight (unless you don't own a property, in which case you'll be super smug).

I hope you are right - because when someone earning twice the average London salary cannot afford to buy a one bed flat in Hackney. Well - it truly is ridiculous.

I live further out in E11 - but I am not seeing the sort of rises in Hackney here at all. Bar some of the more glamourous £1m+ houses in Wanstead prices don't seem to have moved much at all. Perhaps its the post Olympics downturn. Given that E11 (Wanstead, Leytonstone, Snaresbrook) is one of the nicer parts of east London and is relatively safe it seems very odd. Taylor Wimpey have a new development just launching in South Woodford - which is pretty nice and middle class - and one beds start from 'as little as' £175k - not cheap but certainly cheap for London new builds.

Its a mixed bag London of course - head out to Romford (15 mins by rail from Liverpool St) and you can get a two bed cottage with parking and a huge garden for £185k!

http://www.zoopla.co.uk/for-sale/details/18517758?search_identifier=6e82136784f32ebe893ac44d4050e529

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So there simply won't be enough buyers for anything like the number of prime properties which will be available. Which means: the bubble will burst, and it won't be a pretty sight (unless you don't own a property, in which case you'll be super smug).

Thanks for posting, welcome to the forum.

I've lived in London for the last 8 years, and 'insane' is a pretty mild way of putting it. Estate agent window displays are pure comedy. The coming bust is going to be incredible.

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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