New analysis reveals the extent of overseas buying in London prime property market

International buyers now account for 38% of prime property sales in London which is regarded as Europe’s fastest growing and most cosmopolitan city, new research suggests. The latest report from international real estate advisor Savills says that levels of global buying are now back to levels last seen in 1990 and is shows that London is one of the world’s most attractive locations to invest, learn, live and do business.

In the smaller new build market, international buyers dominate in prime locations, accounting for almost three quarters of sales, the report also reveals. 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 number 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. However, Savills says that not only are international buyers a reflection of a city where 35% 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% 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.

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International buyers account for 74% 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 the firm estimates that 3,000 will become much needed rental stock, and 1,400 main residences.

Whether UK based 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 levels. ‘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. It has no bearing on the affordability of London for first time buyers or the squeezed middle,’ said the firm’s director of residential research Yolande Barnes. ‘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,’ she explained.

‘Every buyer in prime London is effectively operating as a global investor even if they are UK nationals. 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,’ she added.

She also pointed out that buyers of all nationalities 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 £37 billion in London’s prime housing markets since 2006. A sizeable proportion of this will have been earned in London, with bonuses from London’s financial sector accounting for £15 billion of spending. The firm forecasts that international buyers will continue to invest at a rate of £6 billion a year and bonus money at £1.5 billion a year for the next five years.