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Tempest

The New "divide" In Hps? London/the City Vs Uk

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I am a bear on house prices in the medium/long term for lots of the usual reasons. However I am trying to reconcile what is going on at the moment here in London/the City with what I understand is happening elsewhere in the UK. This is only conjecture but it seems to me that London and, in particular, the City now benefits from so much of the globalisation that has occurred in financial services, banking, technology, media etc that its income and that of its employees is now far less linked to the performance of "UK PLC" than in the past. As a result the salaries, bonuses etc that employees receive can remain high where profits are earnt on overseas deals, activities, transactions etc even where things are less buoyant in the domestic arena.

Regionally, the story for UK business is not as strong as it ought to be and there are real pressures there which are affecting competitiveness. I think that story will get bleaker before it gets better. The big listed companies and financial institutions which earn their money from international presence seem in far better shape. Witness the M&A boom at the moment.

This seems to be allowing a mini-boom in London HPs which is far above any rate in the rest of the UK (and which is dragging the national figures up). This overspills a little into the desireable commuter belt areas in the SE where Londoners move after they sell up (but it does not affect the entire SE wholesale).

Views welcome. Just to support my argument, the starting salaries for a 23/24 year old investment banker/lawyer/accountant in the City range from £30-40k ish. For people with 5 or 6 years of experience this can easily be around £100k and limitless upwards for the bankers in the right areas. If a pair of 28 year olds earn £160k together they can borrow £500+ on traditional multiples. And the number of recruits this year is huge and growing.

Further support/anecdotal: we nearly sold our house in SW London (under offer but we pulled out) last year for £410,000. We were looking at buying a house out of London for £750/800,000. We are back for sale now 1 year later - at £500,000 (one sold for this on our road, same house as ours, last week) ie 20% up. However, the houses we are looking at out of London (same town/areas) are at pretty much the same asking prices or marginally higher (c 5%).

Obviously there is overseas/foreign buying of London property but I can;t see that that is enough on its own. Perhaps we now have two HP markets in the UK, London and environs and the rest. It is troubling.

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I am a bear on house prices in the medium/long term for lots of the usual reasons.

Obviously there is overseas/foreign buying of London property but I can;t see that that is enough on its own. Perhaps we now have two HP markets in the UK, London and environs and the rest. It is troubling.

This should answer your question;

And the bad news for residential property bulls is that it’s not just the commercial property market that’s relying on wealthy foreigners with no regard for their money – it’s residential house prices too.

Upmarket estate agency Knight Frank says prime central London homes have risen in price by an average of 16.6% since the start of this year.

So who’s been fuelling this demand? Ian Springett at online estate agent primelocation.com elaborates. “The influx of foreign money continues to focus on the most exclusive properties in London, with money from Russia, China, India and, more recently, a surge in demand from Brazilian buyers, snapping up the best properties London has to offer.”

That goes some way to explaining the huge disparity between house prices and UK wages - because it’s not UK wages that are being used to fuel the property bubble.

Like every other faintly desirable asset on the planet, the price of UK properties has been sent soaring by the cheap money sloshing around the globe.

But now the cheap money is drying up, it’ll take its toll on the property market, just as it has on equity markets.

We may already be seeing the first signs of waning interest - according to Knight Frank, the big-money buyers are drying up.

The Independent reports: “A switch in demand from £4m plus homes towards the £1m to £2m price bracket could signal the 'beginning of the end' for the boom in London prices.”

Knight Frank’s Liam Bailey adds: “The prime areas of London are one of the first lead indicators of a housing market downturn or upturn in the UK. This possibly signals the end of the very hot period we have just experienced and we believe price growth in prime central London will begin to slow through 2006.”

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Perhaps we now have two HP markets in the UK, London and environs and the rest. It is troubling.

London's economy is slightly separate to the rest of the country, which has some effect, but isn't in itself enough to stop London prices falling (as 1989-94 showed, when London fell the most). So I don't think it's the economy you need to look at so much as the relative level of pricing.

The difference is that London prices rose from an underpriced low in the mid 90s to fairly reasonable prices in about 2000-2002 then slowed down to a pretty steady level of rises. Meanwhile the rest of the country followed and rose from a reasonably priced level to ridiculous heights (nb this didn't really happen in 1987-89).

So IMO by 2005-06 normal London property was either underpriced compared to the rest of the country or (more likely) less overpriced. This means that at this stage the London market is probably less fragile than elsewhere and may perform better than elsewhere, either falling less, or rising while elsewhere falls.

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The argument falls down when you look at the number of people earning this sort of money. It is a relatively small proportion of London's population. Many of those who are working in London prefer to live in the home counties when they start families.

Just remember, the average london salary is about £30k.

The international money effect is minimal, confined to a few high-end areas which have always been the preserve of the super rich - Kensington, Knightsbridge, Chelsea, Mayfair etc. They tend not to buy 2 bed flats in Islington or SW London.

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The argument falls down when you look at the number of people earning this sort of money. It is a relatively small proportion of London's population. Many of those who are working in London prefer to live in the home counties when they start families.

Just remember, the average london salary is about £30k.

The international money effect is minimal, confined to a few high-end areas which have always been the preserve of the super rich - Kensington, Knightsbridge, Chelsea, Mayfair etc. They tend not to buy 2 bed flats in Islington or SW London.

I take your point but I don't think the argument falls down - London prices over the last 20-30 years have never followed the "average" salary. I would have held your view until recently but the sheer number of people who seem to earn enough to buy £300-500k flats and £500-1000k houses beggars belief round my way. The figures cannot lie (too much!). If the foreign effect is minimal then there must be a reason for the price increases over the last year in London - I think this is a big factor. It may be a low proportion of Londons population but it is a higher proportion of Londons home owning population (as £30kpa ain't going to get you anything to buy).

When you've sold it for £500K let me know

Will do. Only went up yesterday. I think its crazy - trying to pursuade wife to STR and not buy for a year until things pan out...I really think winter 06/07 will be the tipping point (but I said that about winter 05/06!).

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I take your point but I don't think the argument falls down - London prices over the last 20-30 years have never followed the "average" salary. ...

It may be a low proportion of Londons population but it is a higher proportion of Londons home owning population (as £30kpa ain't going to get you anything to buy).

Exactly - for the record London has always had a lower rate of owner occupation than the UK in general (something like 45% vs 60% or so), and even "average houses" in London have generally been beyond the reach of people on average income, being bought instead by people with family money, with high incomes, or by landlords etc.

The one exception was 1994-6 when prices were below long-term trend and people on average salaries could maybe just stretch to buy something at a reasonable multiple of income. But in London that was the exception not the norm.

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Tempest, not sure how far outside you are looking, but I am just inside M25 and the bad news for the bears is anything above £800K is rocketing away and nothing is sitting on the market (apart from one Foxtons property that's got a speculator's price on it (as a redevelopment)) - anything above £2M is sold before brochures are printed and the increase in prices this year seems to be in the order of about 20% (I am assuming if it was at agents and went under offer in less than week they got 95% plus of asking)

Below £800k, property's looking a bit slower and the tow up two downs and small semis have not really moved - the higher end has though. Not relevant to most people, but a sure sign that there is money to spend/borrow - and almost all of the people near me work in the professional services sector (or play for Chelsea).

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The argument falls down when you look at the number of people earning this sort of money. It is a relatively small proportion of London's population. Many of those who are working in London prefer to live in the home counties when they start families.

Just remember, the average london salary is about £30k.

The international money effect is minimal, confined to a few high-end areas which have always been the preserve of the super rich - Kensington, Knightsbridge, Chelsea, Mayfair etc. They tend not to buy 2 bed flats in Islington or SW London.

Simply not true. That's exactly where they buy flats and that's exactly the type of flats they buy.

Each contact sheet for each deal in an I bank has the home addresses of each member of the deal team.

Lots of addresses in the SW-odds sure, but plenty of associates and VPs live in Clapham, Islington etc.

The mailing list for a block in Clapham in which I have an interest is 20% bankers. A couple even work for <gasp> Goldmans.

We haven't even touched investment properties bought by senior bankers yet.

Etc

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Simply not true. That's exactly where they buy flats and that's exactly the type of flats they buy.

Each contact sheet for each deal in an I bank has the home addresses of each member of the deal team.

Lots of addresses in the SW-odds sure, but plenty of associates and VPs live in Clapham, Islington etc.

The mailing list for a block in Clapham in which I have an interest is 20% bankers. A couple even work for <gasp> Goldmans.

We haven't even touched investment properties bought by senior bankers yet.

Etc

You misunderstand me. By "international money" I am not referring to those who have to graft 80hrs a week in banking. They are the domestic London economy. I was referring to the international rich who have homes around the world, not a bloody 2 bed flat with a roof terrace in clapham, home of the public school twit who loves jogging and talking in a VERY LOUD VOICE.

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  • 301 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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