It’s a well reported statistic that 85% of London’s ‘prime’ new build property is bought by overseas investors. Last year 600 migrants came to the UK under the Tier 1 Investor Visa scheme.
The UK’s Migration Advisory Service has recommended that from April, the £1m option is increased to £2m, and that the £5m and £10m options are scrapped altogether. It also notes that the majority of those applying for the scheme choose to invest in government gilts.
These provide little benefit to the UK economy and it recommends that the option to invest in them be withdrawn.
Currently, investors need to evidence that the market value of their investment continuously remains above £1m. In the event of a fall, the investment needs to be topped up. Investors find this nerve-wracking and the committee recommends that this requirement be stopped so investors are more comfortable with risk assets that have greater market fluctuations.
This may have an impact on the already staggering number of foreign backed prime new build schemes due for construction. It is worth remembering that these would never get off the ground otherwise.
Global property purchasers from the Far East, China, Russia, the US, etc, typically buy off-plan. This is not the British way which is partly cultural but is also very much wrapped up with the availability of finance. The banks simply wouldn’t lend on these off-plan schemes and we need overseas money to get them off the ground.
Not only has overseas money for new build apartments come flooding in, now it seems overseas money to develop the homes is also pouring in. The Malaysians recently funded the Battersea Power Station, the Chinese have financed 1 Nine Elms and the Singaporeans are backing Royal Wharf.
These schemes arguably wouldn’t be progressing any time soon if they were still in the hands of UK developers, with huge upfront costs. With this in mind and bearing the current unrest in Eastern Europe, we expect to see continued investment in London from abroad.
Robin Johnson is managing director at KFH Chartered Surveyors
