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London properties a top draw for global rich

Covid hit the pause button on overseas buyers acquiring high-end properties but its many ‘pull’ factors remain as strong as ever

For centuries and decades, it was a trickle, but is now a steady stream. From low numbers of overseas buyers of London properties that barely figured as a significant category in estimates until the early-2000s, estate agents have noted a sustained rise in recent years, particularly from the Middle East and Gulf, Russia, China and the Indian subcontinent. Such has been the recent interest from cash-rich buyers from India that Caroline Takla, a leading Arabic-speaking London property agent, some time ago oversaw the internal re-development of a flat in tony Knightsbridge to comply with the principles of vastu-shastra, the ancient Indian system of architecture. The flat on the third floor of a traditional building on Pont Street was on sale for £4.75 million. It hit the headlines due to the vastu element, and reflected how demands of discerning Indian buyers who specify needs such as space for prayers and servant quarters are being addressed.

Overseas buyers now figure prominently in industry analyses, as London remains the top draw for the global rich, aided by a weakening pound in recent years. There are no restrictions on foreigners buying residential UK property through transparent processes, except for a 2 per cent surcharge on stamp duty levied from April 2021 on non-UK buyers of residential homes, but, unlike some countries, owning a property has no bearing on visa-related issues: in other words, owning a UK property does not lead to residency or citizenship.

For overseas buyers, property in London or Britain is attractive for several reasons: as holiday or seasonal homes (during the extremely hot summer months in the Gulf); as a place to stay for children who study at British schools and universities, and rent it when vacant; a clean, well-established system of title ownership and purchase; as investment for capital gains (London prices at times have grown slowly but rarely plunged); as places to stay while doing business; as a destination of choice to place money in a safe haven; or to simply to keep up with the Joneses (“friends bought one, so I must also have one”). London is one of the most exciting and aspirational places to live and own a property, and a global pandemic has not changed this — if anything, agents believe it reinforces the importance of high net worth individuals having options.

London has always resonated outside Britain at various levels, its vibrant everyday life across cultures seen as an aspiration… as Samuel Johnson once declared: “When a man is tired of London, he is tired of life; for there is in London all that life can afford.” Estate agents cite ‘retail therapy’ in Harrods and other luxury stores as one of the main draws for individuals from the Gulf countries. Several celebrities and elites from various countries (or their local associates) own a piece of London. Evidence from agents and developers suggest that nearly 70 per cent of sales to overseas buyers are for letting purposes. Overseas buyers are more likely to invest in ‘off plan’ purchases — purchases made before the property is built — which bring in immediate finance and guarantees future investment in the development.

Green shoots of recovery

The vastu-compliant flat in Knightsbridge was eventually sold to a buyer from the Middle East in 2018, but cut to 2021 and the situation could not be more different. Takla, who once organised 20-odd apartment viewings during a two-day visit of an Emirati VIP, says Covid has sucked activity out of the high-end market (over £5 million range): “In 24 months, it is a different world today. The biggest challenge is the travel restrictions, even if hotel quarantine is dropped for some countries. The Gulf has always been a big segment, but the market has cooled down considerably. Yes, some developers organise virtual viewings for overseas buyers but it is a bold move for anyone to buy a property only by seeing it online. There are several expressions of interest, but hardly anyone is coming to check out in the £5 million-plus range of properties. There is more stock available, so when things improve in 2022 the old habits will likely return.”

If the £5 million-plus market almost petered out during the pandemic, Knight Frank, a leading estate agent, registered an increase in sales in the lower market range. Demand as measured by £1 million-plus purchases by buyers from the Gulf and India rose by 20 per cent in 2020 compared to 2019, it says, adding that the strength of demand has continued into 2021, with more sales having taken place between January and July this year than in the whole of 2019. The agent expects total sales for 2021 to exceed the levels seen last year by at least a quarter. Demand from the Indian subcontinent and the Gulf, it notes, is led by India, UAE and Saudi, with smaller numbers of buyers coming from Qatar, Pakistan and other countries in the region.

Stuart Bailey, head of London Prime Sales at Knight Frank, says: “Domestic activity has kept the market going; when more international buyers come, prices will go up. Currently the prices are kept attractive, stable — they are at the bottom of a five-year trend. Interest from overseas buyers has started to come up slowly; it is not a tidal activity yet, not flooding in, but slowly and surely we expect it to rise in the coming months. We have seen that education of children is a significant driver to buy property here. London is also a straightforward place to do business [in] and the 2 per cent surcharge on stamp duty could be offset by holding on to a property longer. Buyers from the Gulf are particularly interested in areas such as Mayfair, Belgravia, Chelsea and Knightsbridge — popular areas for shopping. The market has moved such that Knightsbridge prices have remained stable while Notting Hill has gone up, fuelled by domestic demand.”

On August 8, India, UAE, Qatar and Bahrain were moved from the ‘red’ to ‘amber’ list, removing the compulsory hotel quarantine requirement for arrivals from the countries. The move has perked up the property market not only in London but also elsewhere in the UK. Savills, another leading agent, expects the UK’s prime housing markets outside London to grow by 9 per cent across 2021. The experience of the various lockdowns caused a race for space, as many affluent buyers searched for larger homes and considered lifestyle and relocation moves, which meant that well-priced properties have been selling quickly and those in the most sought-after markets have often attracted competitive bidding. In particular, £2 million-plus prime country houses and coastal markets have seen substantial surges in demand.

On prime London market, Alex Christian of Savills Private Office says: “The recovery of central London’s prime market has certainly been impacted by the delayed easing of travel restrictions, but we are already seeing green shoots of positivity. Since quarantine restrictions were dropped for fully-vaccinated travellers from Europe and the US earlier this month, we have already seen a flurry of activity from overseas clients, particularly from families who are keen to enter the prime London market before the new school term starts in September. Now that the requirement for hotel quarantine has also been dropped for residents of the UAE and Qatar, many of our contacts have also started to get in touch regarding plans to visit the UK later this month and into September, as they seek to take advantage of the historical value on offer in the Capital. This should have a relatively profound effect on the prime market in the coming months. High quality, ‘turn-key’ homes, and ‘lock up and leave’ flats are in highest demand from prime overseas buyers.”

There are no official statistics on the sale of residential property to overseas buyers. Estimates are based on figures of estate agents, but this research tends to focus exclusively on London, which attracts the overwhelming majority of overseas investment. The category of ‘overseas buyers’ is also not easy to quantify, given the slippage between their location and nationalities. There are British expatriates who buy property in London and elsewhere in the UK for the time when they return home, but are classed as overseas buyers, while Indian and other foreign professionals working in the UK who buy property are often categorised as domestic buyers. Over 35 per cent of London’s residents were born abroad. Recent research has shown that overseas buyers account for 36 per cent of sales in prime boroughs (the City of London, Westminster and Kensington & Chelsea) compared to 16.2 per cent in the rest of inner London and 5.7 per cent in outer London; also, overseas buyers are under-represented in the lower price bands and over-represented in higher price bands. In recent years, Indian professionals have been given over 50 per cent of all UK work visas granted; many buy property among their first acquisitions, even if they return home after a short tenure or after some years.

Rajesh Joshi, senior India-based academic who worked for BBC World Service in London for several years, says: “The first advice you get when you land up in London from overseas with even a half-decent job, is to buy a flat or house, instead of renting one. Realising that the monthly mortgage outgoing was only a wee bit higher than what my wife and I were paying as rent, we saved to put down the minimum deposit to secure a mortgage. Although we did not intend to permanently settle down in the UK, the investment was worth it: first, it gives you immense psychological freedom to live in your own accommodation, and, secondly, when you return to your home country, renting out your flat or house is not a problem, because demand is always higher than supply in the UK property market, especially in London. We lived in our flat only for three years and put it on rent before returning to India a decade ago. Income from the property takes care of the monthly mortgage and other expenses. It has been a happy story so far, but the challenging and at times frustrating part is managing the property from a distance. My two pennies worth of advice: Hire a firm to manage your property before returning home.”

Cause for concern?

Foreigners buying property in London has lately got a bad press, when instances of a large number of flats in new-build central London blocks bought by overseas buyers are highlighted. For example, a recent investigation by The Guardian revealed that the UK’s tallest residential skyscraper, St George Wharf in Vauxhall, was more than 60 per cent foreign-owned and under-occupied. Driven by such reports, London mayor Sadiq Khan has been critical of foreign investors using homes in London as “gold bricks for investment”. He has warned that building thousands of new homes a year in London to solve the housing crisis would mean nothing if “they are all bought by investors in the Middle East and Asia for use as second homes or they sit empty”.

Some organisations such as the Bow Group, Civitas and Smith Institute have argued that overseas investment was causing prices to rise, making housing unavailable and beyond the reach for most domestic buyers. There is also concern about ‘buy-to-leave’ foreign investors leaving properties empty, mostly using them for a few weeks or months in a year, although there is little evidence that this is a large-scale problem.

Responding to the concern, Khan commissioned research from the University of York and the London School of Economics, saying: “We welcome investment from around the world in building new homes, including those for first-time buyers. At the same time, as more and more Londoners struggle to get on the property ladder, there are real concerns about the prospect of a surge in the number of homes being bought by overseas investors.” But both studies found little evidence to support the claim that homes are being left entirely empty as a widespread practice. A briefing paper by the House of Commons Library notes that research on the effects of overseas investment on the London property market is conjectural as it is difficult to separate the effect of such investment from other factors. The government has not conducted any studies, and there is little consensus over its impact.

(Prasun is a journalist based in London. He tweets @PrasunSonwalkar.)