Above is an interesting video from the Financial Times about the Central London property bubble, which appears to have re-emerged on the back of heavy foreign buying.
The video contains loads of interesting charts and analysis. For example, there’s this chart plotting Greater London property values against those in Miami (rebased to USD). As you can see, London home prices have recovered most of their value lost in the wake of the GFC.
However, the video notes that almost all of the gains in Greater London home prices since 2008-09 have been in the Prime Central London market – i.e. the top 2% to 3% of homes. This is illustrated by the next chart showing house prices in Prime Central London, Greater London, and the UK as a whole (rebased to USD):
As well as the below scatter chart showing how cheaper London homes prior to the pre-GFC price peak are typically the ones that have lost the most value:
The Prime Central London price boom has been driven predominantly by foreign buyers, as shown by the next chart, which shows that only 19% of sales of new Central London developments (not just Prime) are to locals:
The video concludes by questioning whether the dynamics pushing-up Central London property values are sustainable. Foreign demand tends to be fluid, and any sharp slowing in Asia, or resolution in the Euro zone (thereby removing Central London’s ‘safe haven’ status), could upset the apple cart.
Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
