Why overseas buyers are key to London’s success

To say we live in changing times is to state the obvious but one characteristic retained by London, whatever the political and economic weather, has been its internationalism, writes Graham Norwood.

In these days when the role and number of overseas residents and buyers are under the spotlight, it’s worth looking at the most solid piece of research undertaken in recent years as to the impact of non-UK citizens on the capital’s housing market.

The exercise – called The Role of Overseas Investors in the London New Build Residential Market – was undertaken in 2017 by the London School of Economics.

Its findings fill a hefty 30-page document but the key messages make interesting reading and perhaps debunk some myths about the impact of overseas purchasers in the capital.

Firstly, it revealed precisely why overseas buyers choose to purchase in London – even when the UK’s housing market is less buoyant than those in some other locations.

There are several reasons: around 70% buy because the property is an investment to be let out; the other 30% buy either to accommodate family members, or to have a London home either for work reasons or as a discretionary holiday base in Europe.

Secondly, the ‘old chestnut’ – how many overseas-owned new-build homes are left empty?

The answer is a mere 1%. No, that’s not a misprint – just 1%. Developers who were quizzed for the LSE’s two-year investigation reported that there was 95% permanent occupancy off their new homes, either by owner occupiers or tenants; the remaining 4% were occasionally occupied in the way of second homes. And yes, just 1% was left empty.

Thirdly, the LSE exercise attempted to quantify the broader impact of overseas buyers, both to the capital’s house building programme and to London’s economic wellbeing.

All private developers told the investigation that they required off-plan ‘pre-sales’ of apartments and houses in a scheme to provide early funding for the scheme – and often, although not always, that early funding was provided by international buyers.

Pre-sales to UK buyers were also important but these typically occur later in the scheme’s construction – domestic purchasers, it seems, like to see before they buy. It’s an understandable sentiment but explains why many early sales are to overseas buyers.

On top of that, the rental sector in the capital has become larger in size and higher in standard thanks to international investment. This has happened because some individual buyers have let out their flats and houses, while overseas institutions have been key to the growth of the new and high-spec ‘Build To Rent’ sector of purpose-built homes to let.

All in all, overseas buyers make an impressive contribution to London and the housing market – let’s hope it stays that way in the years to come.

“Overseas buyers make an impressive contribution to London and the housing market – let’s hope it stays that way in the years to come”