London Housing Market Shows Rising Bubble Risk as Asians Buy

cbRPeKJEY stated that London homeowners have to borrow as much relative to their income in order to purchase property as they were before the economic downturn. By 2018, the Land Registry estimates the average home in London will cost around £600,000. At the moment it stands at around £404,000.

Andrew Goodwin, the senior economic adviser to the EY Item Club said, “remain well below their pre-crisis peaks and there seems little danger of a bubble… But London, which is suffering from a combination of strong demand and a lack of supply, is increasingly giving us cause for concern.”

Analysts, economists and politicians have warned of their worries for unpredictable gains due to massively rising London real estate prices, which have been fuelled by the huge interest from overseas investors, and government funded aids for buyers. Investors from Asian countries such as China & Singapore have been taking advantage in the decreasing worth of the pound to buy these London homes.

Overseas-Buying Surge

In the last 2 years, people living outside the United Kingdom purchased half of the new properties sold in London.

According to the EY Club Item report, a property bubble in London could be hard to avoid because the values in prime districts of the capital have been outperforming those in the city’s peripheral areas. The broker Savills PLC has found that the values in London’s most expensive neighbourhoods like Mayfair and Knightsbridge are 27% above the prices they were at in 2007.

Land Registry data.

Dean Hodcroft, the head of real estate, construction and hospitality in the UK & Ireland said, “Bursting a bubble at the luxury end of the market, which continues to attract interest from international cash buyers with the seemingly irresistible global draw of London’s X-factor, may prove tricky,”

Pound’s Gains

The pound has recently had some gains in its strength, and combined with a drop in the Euro debt crisis, it means there will be a small reduction for demand in London’s most pricey areas. Heightening home costs will aslo be slightly stunted by the increase in supply in these areas.

According to the EY report, the prime housing market in London “has completely different drivers to the rest of the U.K… There is a strong argument for ignoring the excesses of the prime central London market” and “arguably it would be more appropriate to treat it as an investment market, rather than a residential market.”

Last month, house prices in the capital rose at a 0.3% faster rate than the national gain. The EY Club estimates the average UK house price this year will raise by 8.4%. This will then be followed by 7.3% in 2015 and around 5% in 2016.