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Weak Growth Sparks Fears Of Fall In London House Prices

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http://www.ft.com/cm...l#axzz2mFhdo1va

Weak growth sparks fears of fall in London house prices

By Chris Giles, Economics Editor, Sam Fleming, James Pickford and Delphine Strauss

House prices in prime areas of central London have stalled in November, raising the possibility that the capital's property boom is diminishing.

Residential prices in the City, Westminster, Kensington & Chelsea and other central areas such as St John's Wood rose by only 0.2 per cent in the month, according to Knight Frank, the property consultancy, leading to annual growth of 6.9 per cent – the lowest figure in four years.

The weak monthly figures, in what has been the hottest part of the property market in Britain since 2009, suggest that London's house prices will struggle to rise ever higher than other parts of the country for much longer.

Figures from the Nationwide Building Society show that prices in the capital are almost twice the national average, the biggest differential in at least 40 years.

On the two previous occasions when London's house prices were more than 80 per cent above the rest of the UK, the gap shrunk rapidly over the next few years. London house prices fell 31 per cent between 1989 and 1992; and while prices did not fall in the early 2000s, a much bigger boom elsewhere narrowed the gap with the capital.

After the financial crisis, the capital's house prices recovered much faster than elsewhere, led by the prime central London market that had the advantages of foreign demand and cash buyers who do not need mortgages.

Betting against London prices has proved a mug's game for most of the past 40 years, with the exception of the crash in the early 1990s recession. It is after all, a vibrant capital city with severe limits on new home building.

But with the prime market slowing down and capital gains tax about to be levied on foreign owners, the Bank of England withdrawing some supports from the mortgage market and the gap with the rest of the country so large, an important question is what could set the London property market back in the style of the 1990s.

Sentiment turns

Bubbles burst. To the extent that home buyers in London have been rushing to purchase, for fear of further price rises, a change in expectation of future gains would have a radical effect. Those wanting to purchase property would be willing to wait, while owners would want to offload their stock as quickly as possible. With a change in sentiment, prices can turn very quickly.

Although there are straws in the wind in prime central London and in properties over £2m, prices in the rest of the capital are still rising fast, but Liam Bailey, head of global residential research at Knight Frank, says there are natural limits even for the plushest homes. "In the long term, price growth above earnings growth isn't sustainable and even central London can't expect the performance [of the past four years] to continue".

The City becomes unattractive

Ask bankers in the City of London what keeps them up at night and withdrawal from the EU will be high on the list.

Given a referendum on membership may happen after the 2015 election, it is worth asking what a serious setback to the City's status as Europe's financial capital would do to house prices.

The last financial crash took its toll on prime central London property, with residential values dropping 24 per cent between March 2008 and 2009 before staging a comeback.

Another reason foreign investors might tire of London is if the city starts to burst at the seams. Dick Sorabji, director of policy at London Councils, the umbrella group for the city's 33 boroughs, said: "If we fail to keep up with the infrastructure needs of 100,000 more Londoners every year, as the projections suggest . . . that will slow the growth and damage the city. But I think investors will keep coming."

Government policies

Estate agents operating at the most expensive end of the London market have noticed the weakest area is now for so-called "mansions" above £2m, which have been subject to 7 per cent stamp duty since April 2012.

If that tax on transactions is having an effect, there are many other threats from government policies that could cause prices to slip.

An annual "mansion tax" would exacerbate that effect, reducing prices without making London's prime homes any more affordable.

For the bulk of London property, what is happening in the prime market is largely irrelevant, but a revaluation of Council Tax bands, the imposition of capital gains tax on foreign ownership of property, further action from the BoE, or a revolution in house building could pull the rug out from under the whole market. <br class="">

A sterling crisis

London property has been described as the new reserve currency for a global elite – but like any cross border investment, it is at the mercy of exchange rates.

Were the pound to fall rapidly, the values of foreign property purchases in London could be hit, which could cause a stampede for the exit.

But a currency crisis is a double-edged sword.

The pound's slide from 2007 to 2009 – combined with falling house prices – enabled foreigners to snap up "bargains" in London: 50 per cent cheaper in dollar terms in the space of a year and as much as 60 per cent less to someone financing a purchase in yen.

This prompted a surge in overseas buyers in the prime central London market.

Experts say the risks of foreign capital flight require vigilance. Andrew Heywood, consultant and editor of Housing Finance International said: "We need to shape that [foreign] investment but avoid doing so in a way that causes an abrupt collapse, which would feed into falling house prices, negative equity, collapse of development and damage to the affordable homes programme through the potential impact on cross subsidy of affordable housing."

Affordability

Ultimately, living in London could become too expensive for "ordinary" families and companies, particularly if the BoE raises interest rates causing a sudden reversal in London property prices.

Evidence is mounting that the high cost of living in the capital is causing more residents to slide into poverty, defined as having an income less than 60 per cent of the national median.

This is particularly marked for London's working poor. Over the ten years to 2011–12, the number of people in in-work poverty increased by 440,000, according to data from the Trust for London, a charity.

Foreign money pouring into the capital has exacerbated that trend by raising the cost of living and any sudden withdrawal could also be highly damaging.

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I like this bit:

The pound's slide from 2007 to 2009 – combined with falling house prices – enabled foreigners to snap up "bargains" in London: 50 per cent cheaper in dollar terms in the space of a year and as much as 60 per cent less to someone financing a purchase in yen.

This prompted a surge in overseas buyers in the prime central London market.

I see the next housing boom linked to a sterling crisis and we're not there yet. When it does happen, house prices across the UK will react to offer *some* protection against a falling pound. It'll be foreign buyers who will then flood back into the market. Think of all those Chinese millionaires, billionaires and trillionaries who'd prefer to live somewhere nice and pollution free rather than in China, where they are erecting 2 coal fired power stations a week on average.

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Is this part of the PR war to stop Osbourne doing anything about foreign buyers in the Autumn statement on Thursday?

Perhaps to stop stamp duty increases or adjustments, and there has been a few murmurs that capital gains will be introduced for foreign buyers.

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I guess the chinese have realised its easier to dump their cash into bitcoin :ph34r:

That and houses in Vancouver.

Edited by TheBlueCat

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I like this bit:

I see the next housing boom linked to a sterling crisis and we're not there yet. When it does happen, house prices across the UK will react to offer *some* protection against a falling pound. It'll be foreign buyers who will then flood back into the market. Think of all those Chinese millionaires, billionaires and trillionaries who'd prefer to live somewhere nice and pollution free rather than in China, where they are erecting 2 coal fired power stations a week on average.

Then why would they want to come to the UK??,, there are many places far better in the world than the UK for a Chinese Millionaire/billionaire.

I visited the UK 3 days ago, had to get an emergency passport, I traveled through, London, Luton, Milton Keynes, Coventry, Birmingham, Manchester and Liverpool, and then back again...... I have never had such an unpleasant time in my whole life of traveling.... the whole experience took 3 days,

I have lived outside the UK for 12 years and I was shocked as to how full it is, seriously the infrastructure cannot take anymore people,, you should all leave now while you still have the chance.

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an abrupt collapse, which would feed into falling house prices, negative equity, collapse of development and damage to the affordable homes programme through the potential impact on cross subsidy of affordable housing.

Just amazing the mental contortions people will go through to avoid cognitive dissonance.

Cheaper housing is bad because it would reduce the number of affordable homes? Someone said this in public? And someone else took this crap seriously?

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I traveled through, London, Luton, Milton Keynes, Coventry, Birmingham, Manchester and Liverpool, and then back again...... I have never had such an unpleasant time in my whole life of traveling.... the whole experience took 3 days,

I used to have a car like that. :)

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Then why would they want to come to the UK?

They don't necessarily have to live here. All that Sterling accumulating abroad as a result of our massive trade imbalance will flood back into the UK. They could just stay abroad and live off their rental returns.

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Its Christmas time - there' no need to be afraid.

At Christmas time we let in light and banish shade

And in our world of plenty we can spread a smile of Joy

Throw your arms around the world at Christmas time.

But say a prayer, Pray for the other ones.

At Christmas time it's hard but when you're having fun...

There's a world outside your window

and it's a world of dread and fear

Where the only water flowing is the bitter sting of tears

Where the Christmas bells that are ringing are the clanging chimes of Doom

Well, tonight thank God it's them instead of you. :D

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