Article: Luxury London Home Sales Plunge 26% – Has This Mega Real Estate Bubble Finally Burst?

[Assume The Opposite]

http://libertyblitzkrieg.com/2015/09/09/luxury-london-home-sales-plunge-26-has-this-mega-real-estate-bubble-burst/

"It appears the music may have finally stopped for one of the world’s largest luxury real estate bubbles: London.

It’s well known that foreign oligarchs love London real estate as a means to launder funds, typically “earned” by soaking their host countries dry via corruption and fraud. This has caused absurd and irrational spikes in high-end residential real estate in the English capital, as well as a flood of new construction.

With emerging markets now completely collapsing, the seemingly endless flood of foreign money is drying up, and with it, London real estate.

So has the London real estate bubble popped? Probably"

[TheCountOfNowhere]

probably, definitely

[TheCountOfNowhere]

look at this graph.

the housing market detached from supply and demand reality in early 2014, just as help to buy 2 started.

ask yourself, will sales volumes shoot up or prices shoot down in order to return to normal?

based on the insane prices, I'll go with price.

this graph shows how wrong help to buy is, the market must be driven by speculation, in my humble opinion.

graph-tastic.

[TheCountOfNowhere]

ps help to buy 1 also caused a massive up lift.

shocking evidence of a tory government using tax payers money to help boost house builders prices and profits.

didn't they make donations to their party?

making Untrue promises for gain is what used to be know as fraud.

fraud squad time.

[rollover]

Isn't there something like 40'000 flats over a mill being built in London ATM?

Who is building these? I feel a short

Almost all of them are luxury apartments and almost non affordable flats. That's the problem in London.

[Assume The Opposite]

this graph shows how wrong help to buy is, the market must be driven by speculation, in my humble opinion.

I found it interesting when you compare the money supply vs house prices.

Looks like the money supply/credit creation pumps the house prices and grows the GDP. Makes you wonder what the UK actually does.

[royalvictor]

I feel a big short coming on as well, at least in that segment. Any 1 bed for 500k is overpriced by at least 100-150k easily (purely argueing from a rational perspective using 60k average salary and 5-times multiple and assuming some decent sized deposit). As disclaimer, yes, this is calculated on the high side. Local demand = 0. Either some ill-informed arabs or other foreigners snap them up at some point or they'll stay empty in the foreseeable future. If we assume they had been bough mainly outright with 100% cash to "park" or launder it, well, these kind of investors I reckon could live with a 20% loss. I mean if they have been hanging around waiting for other buyers, the owners may not be in a rush to sell at all. If they are actually let out, rents may or may not neccessarily come under pressure. As a cash buyer I would be less stressed out on my running cost than if I were to finance on a silly shoe-string as BTL, so no real need to push up the rates to cover my higher costs (increasing service charges, rising interest rates and alike). That's one possible outcome. But who knows, perhaps they'll be "forced" to sell given new taxation rules etc. Here I had SW London in mind.

East London I would argue - and please correct me if I am wrong - is a different ball game. There will be some serious oversupply and these investors are second tier at best. The ones jumping last onto that freight train. Even if one could no longer sell Battersea and SW as "prime", at least its in the West, but hoods like Stratford, Bow, Hackney, Walthamstow, Woolwich, Rotherhide, Canning Town, the Asian "business hub" ... "gentrification" my eye, with asking prices of 400k as well, that's where I see the real bubble. To and from work cranes everywhere. They look so nice and flasy in glossy brochures till a run down doner shop and poundland is found, not quite the buzzing shopping mile and flashy eateries the EA made their Asian buyers believe... Even today the Stratford shopping mile I find absolutely horrible. The few times I had to buy something there, I loathed it every time. This ain't Selfridges or Jermyn St by any stretch of imagination. I am struggling with this whole concept of gentrifying the East. In 10-15 years perhaps like with the Docklands.

I was playing around with some NPV calculation earlier today. A 400k condo BTL bought just 50k over market value and letting its value appreciate by 5% pa, increasing the costs (interest rate and service changes), bad news for the BTL investor. It's NPV negative for the first 5+ years, perhaps even 7 years depending how much was paid in excess of its fair value. That could be a reason BTL'ers getting forced into selling in 2-3 years from now when they have to remortgage. Till then not sure what'll happen.

[dances with sheeple]

probably, definitely

[Tapori]

East London I would argue - and please correct me if I am wrong - is a different ball game. There will be some serious oversupply and these investors are second tier at best. The ones jumping last onto that freight train. Even if one could no longer sell Battersea and SW as "prime", at least its in the West, but hoods like Stratford, Bow, Hackney, Walthamstow, Woolwich, Rotherhide, Canning Town, the Asian "business hub" ... "gentrification" my eye, with asking prices of 400k as well, that's where I see the real bubble. To and from work cranes everywhere. They look so nice and flasy in glossy brochures till a run down doner shop and poundland is found, not quite the buzzing shopping mile and flashy eateries the EA made their Asian buyers believe... Even today the Stratford shopping mile I find absolutely horrible. The few times I had to buy something there, I loathed it every time. This ain't Selfridges or Jermyn St by any stretch of imagination. I am struggling with this whole concept of gentrifying the East. In 10-15 years perhaps like with the Docklands.

.

Hey; leave the donner out of this. What about the fried chicken?

and yeah, Agree with you about East though, those new builds are good and nice but 350k+ for canning town? My mate who's lived there all his life pissed himself laughing.

If London's Prime property market inflation was a in a large part due to foreign capital, both legit and dodgy, then as global markets dive either these investors should conceivably sell...? Or will they?

Won't they sit on these properties for a while thinking their "money" is "safe" in these "deposit boxes"?

[dances with sheeple]

[rollover]

I feel a big short coming on as well, at least in that segment. Any 1 bed for 500k is overpriced by at least 100-150k easily (purely argueing from a rational perspective using 60k average salary and 5-times multiple and assuming some decent sized deposit).

In London, 60k is rather a higher average salary and 1 bedroom is starter home not average family home. Any 1 bed for 500k is overpriced by at least 300k.

Edited September 11, 2015 by rollover

[TheCountOfNowhere]

Almost all of them are luxury apartments and almost non affordable flats. That's the problem in London.

they're called luxury apartments, when I'm reality, they're just expensive, over priced flats

[iamnumerate]

In London, 60k is rather a higher average salary and 1 bedroom is starter home not average family home. Any 1 bed for 500k is overpriced by at least 300k.

+1

15 years ago I could buy a 3 bed flat in London for less than £100 K. Flats in the same block cost £270k - have wages gone up by 1.5x times

(btw £100k was expensive then historically).

[iamnumerate]

they're called luxury apartments, when I'm reality, they're just expensive, over priced flats

+1

[richc]

they're called luxury apartments, when I'm reality, they're just expensive, over priced flats

Funny how they're trying to put on airs by using the American term "apartment", though in America only poor people live in apartments -- anyone with any money would live in a "condo", not an "apartment".

[JustAnotherProle]

The east end of London is turning into something resembling a Dubai wannabe, these high rise luxury apartments look so out of place, there is going to be a massive amount of crashy crashy in the prices of those , and yet the cranes are everywhere, it's all an illusion built on speculation and unsustainable debt.

[MattW]

In London, 60k is rather a higher average salary and 1 bedroom is starter home not average family home. Any 1 bed for 500k is overpriced by at least 300k.

Yeah, even if a singleton can afford the £3-500k flat, finds a partner, gets married and then wishes to start a family, moving up the 'property ladder' becomes almost impossible. Can't exactly wish for steep wage increases or internal promotions every couple of years in this climate of job insecurity.

+1

15 years ago I could buy a 3 bed flat in London for less than £100 K. Flats in the same block cost £270k - have wages gone up by 1.5x times

(btw £100k was expensive then historically).

In the late 1990s/early 2000s I remember watching a documentary about estate agents. Featured a middle aged lady wanting to sell her detached house in Newcastle and buy in London to be close to her daughter. Newcastle house was valued at £80k at the time. London based Estate Agent showed the lady what £80k will buy her: a tired looking 3 br ground floor flat (looked ex council) with single glazed crittall windows. It was a shock to the system to her!

[royalvictor]

two of my favourites:

Ballymore's River Island:

http://www.cornwell.com.au/projects/content/london-city-island/images/City-Island-01.jpg

Hoola:

https://media.licdn.com/media/p/1/005/094/097/0ebb219.png

or better yet, the Royal Wharf:

http://2.bp.blogspot.com/-HV2SwRWbZcU/UxCxUC3OnWI/AAAAAAAACuk/5qDWiVTq0ng/s1600/Royal_wharf_London_Urproperty_sg.PNG

anyone heard of the lovely Asian Business Hub? Any info on what the status is there? Little press coverage I can find:

http://www.constructionenquirer.com/2015/04/15/go-ahead-for-1-7bn-royal-albert-dock-scheme/

nothing in recent weeks. I bet a bottle of Cheval Blanc (or Blue Nun) that the business hub will get "delayed" at best if not scrapped.

[South Lorne]

http://libertyblitzkrieg.com/2015/09/09/luxury-london-home-sales-plunge-26-has-this-mega-real-estate-bubble-burst/

"It appears the music may have finally stopped for one of the world’s largest luxury real estate bubbles: London.

It’s well known that foreign oligarchs love London real estate as a means to launder funds, typically “earned” by soaking their host countries dry via corruption and fraud. This has caused absurd and irrational spikes in high-end residential real estate in the English capital, as well as a flood of new construction.

With emerging markets now completely collapsing, the seemingly endless flood of foreign money is drying up, and with it, London real estate.

So has the London real estate bubble popped? Probably"

...and many overseas investors caught in the trauma and who have bought already will be bailng out to raise funds.....+ others may see a trend and look for the exit signs ....

[pipllman]

if a foreign buyer buys a property here in the UK for £500k

and then sells it for £300k

is that £200k going to show up anywhere on the balance of trade numbers or anything similar?

or is it just a net movement of FX towards the UK£?

[billybong]

if a foreign buyer buys a property here in the UK for £500k

and then sells it for £300k

is that £200k going to show up anywhere on the balance of trade numbers or anything similar?

or is it just a net movement of FX towards the UK£?

Interesting. Some journalist suggested recently that sales to overseas buyers should be under "exports". So they would want the big figures on the "export" side and they would probably want the small figures on the "import" side so them selling at a loss would help the balance of trade?

See - soon, like in the UK, everyone around the world will be selling houses to each other, "importing" and "exporting" them - everyone wins, everyone will be in surplus (maybe except the locals).

Edited September 11, 2015 by billybong

[pipllman]

selling property to overseas investors is a nice way of bringing money into the economy imo

also, it generates a fair whack of SDLT

given that the type of property involved seems to have been specifically created for that market, I am not sure it is such a bad thing really

there can be no future profit gained by selling units on any of the developments featured on this thread to UK buyers - surely there can't, can there?!?!

so, a loss borne by an overseas investor, a big whack of SDLT, and a profit made by employing people in productive work here in the UK to build them.

plenty to like in that mix from where I am sitting

[billybong]

Except a London block of modern say 1 bed flats marketed and sold overseas to rich buyers is mostly still similar if not identical to London blocks of modern 1 bed flats sold to local buyers and sold elsewhere in the past so the sale prices are being set at a rich margin for basically identical flats. Flats that used to be near starter homes. So new locals can't afford them - not by a long stretch.

It might (or might not) turn out ok for locals if prices collapse but in the meantime (and that could mean years and years on past performance) locals are displaced from even 1 bed flats.

Edited September 11, 2015 by billybong

[pipllman]

Except a London block of modern say 1 bed flats marketed and sold overseas to rich buyers is mostly still similar if not identical to London blocks of modern 1 bed flats sold to local buyers and sold elsewhere in the past so the sale prices are being set at a rich margin for basically identical flats. Flats that used to be near starter homes. So new locals can't afford them - not by a long stretch.

It might (or might not) turn out ok for locals if prices collapse but in the meantime (and that could mean years and years on past performance) local are displaced from even 1 bed flats.

Fair point,

But maybe the flats wouldn't even be built for years (given the market is as it is and has been) without the lure of overseas potential buyers prepared to pay up to £775k for a one bed in the battersea power station development (for instance). After all, the power station site has been unused for a long time with no flats being built on it.

Whilst building some for sale to overseas investors that locals can't immediately afford doesn't do anything to help local potential buyers, it does get them built. I am quite sure that most of the overseas buyers have no intention of coming here to live in them.

And, once they are there, they are there pretty much no matter what happens to the price.

[billybong]

Fair point,

But maybe the flats wouldn't even be built for years (given the market is as it is and has been) without the lure of overseas potential buyers prepared to pay up to £775k for a one bed in the battersea power station development (for instance). After all, the power station site has been unused for a long time with no flats being built on it.

Whilst building some for sale to overseas investors that locals can't immediately afford doesn't do anything to help local potential buyers, it does get them built. I am quite sure that most of the overseas buyers have no intention of coming here to live in them.

And, once they are there, they are there pretty much no matter what happens to the price.

They are there and currently at crazy price levels. There's potential through a significant price collapse for them to be truly affordable (truly affordable - not through scam schemes like Help to Buy etc) but what's the chances that the UK politicians and bankers won't throw a spanner in the works again. Who knows but they might spring a surprise but I wouldn't like to bet on that possibility.