Prime London housing: World city, global market

London is Europe's fastest growing and most cosmopolitan city and one of the world's most attractive locations in which to invest, learn, live and do business.  Its prime residential real estate is a global asset class where international buyers account for 38 per cent of resale transactions in prime locations, back to levels first seen in 1990, according to latest data from international real estate adviser, Savills.
In the much smaller new build market, international buyers dominate in prime locations, accounting for almost three-quarters of sales.  A majority of these are investment buyers, many UK-based, and providing much-needed rental stock - an estimated total of 3,000 units in the past year - and vital development funding.  Only a small proportion are buying second homes, most in the ultra prime sector of the market.
There have been calls to restrict international investor activity, with claims that Londoners are being priced out of the market or that swathes of the capital are becoming 'lights out  London'.  But, says Savills in World in London, not only are international buyers a reflection of a city where 35 per of residents were born overseas, they are also helping to underwrite much of London's new development and delivering vital new rental stock. 
Savills estimates that within London's prime locations 93 per cent of all buyers have an occupation or business interests in the UK, and two-thirds of international buyers of resale properties live and work in London and consider the city home.
New build buying in detail
International buyers account for 74 per cent of new build sales in prime locations, but at least half of these sales are transacted to UK-based international buyers.  Of around 5,150 new build sales last year to international buyers (a mix of overseas and London based), 3,000 will become much-needed rental stock, a further 1,400 main residences. 
Whether UK or overseas based, international buyers are providing the development funding necessary to get schemes off the ground.  Additionally, Savills estimates that some 3,000 affordable homes were brought forward (through Section 106 agreements) last year in schemes at least part-funded by international sales activity, often through advance marketing both in the UK and overseas.
On the politically sensitive subject of international buyers acquiring second homes in London, the firm estimates that there were no more than 750 such sales in 2012, spread across all price points.   "In the context of the total 97,000 transactions in Greater London, this does not move the dial for the London market as a whole," says Barnes.   "It has no bearing on the affordability of London for first time buyers or the squeezed middle. 
"The real issues in the mainstream market do not relate to international buying activity, but rather to a lack of supply.  This bigger sector of the whole market desperately needs more large scale funding, whether from the UK or overseas."
The future
"Every buyer in prime London is effectively operating as a global investor even if they are UK nationals," says Barnes.  "Domestic buyers, whether acquiring a home or a buy to let investment property, are buying into the same global phenomenon that is  London. Their wealth has been created in a global city-state and the price they can pay in order to compete in this limited geography reflects that. 
"Buyers of all nationalities - including domestic - see London as a safe haven for their money and this has been particularly true since the credit crunch when bricks and mortar have outperformed many other investment classes in terms of both capital growth and income returns."  
Savills estimates that international buyers have spent a total of Ј37 billion in London's prime housing markets since 2006.  A sizeable proportion of will have been earned in  London, with bonuses from London's financial sector accounting for Ј15 billion of spending.  The firm forecasts that international buyers will continue to invest at a rate of Ј6 billion a year and bonus money at Ј1.5 billion a year for the next five years.
"The reality is that there will continue to be global wealth - whether internationally or domestically earned - looking for investment opportunities in a stable, transparent market and so London's prime housing market will continue to be closely linked to global business activity in London." 
Prime London - the numbers
1. Prime London locations - resale and new build market UK/international buyer split
2. Market share by global region
View Spotlight - The World in London

savills