Concerns about London property ghost towns
While bearing in mind that London is one of the more popular property markets in the world, talk of ghost towns within London seem to be very strange on the surface. However, there is growing concern that the so-called “property safe haven” which is London is leading to an array of properties being purchased and remaining empty.
At a time when property prices in the UK continue to rise, rental accommodation is in growing demand it seems bizarre that some of the more affluent properties in the UK may remain empty for the foreseeable future. When you bear in mind that the average UK home costs around £248,000 against £441,000 in London we can only begin to estimate the amount of money tied up in empty properties.
Is this good for the property market?
The fact is that traditional investors would look to at least cover the cost of holding a property by renting this to third parties if they were not able to live there themselves. While yields in some of London’s more luxurious micro-property markets have plummeted to 3% (and lower in some cases) even this compares favourably against current UK base rates and inflation. The 3% rental yields would effectively allow the owner of a property to broadly maintain their investment in real terms going forward. So why would you leave a property empty?
Quote from PropertyForum.com : “Property prices in the UK increased by an average of 1% between 9 December 2013 and 11 January 2014. The festive period is traditionally a time for reflection in the UK real estate market with prices falling over the last 10 years by an average of 0.2% at the turn of the year.”
Are short-term investors dominating the London property market?
The fact that some investors are happy not to rent out their properties gives the impression that they are potentially looking for a “safe haven” for their assets while the worldwide economy begins the long road to recovery. That would also seem to indicate that these short-term investors will be looking at some stage to liquidate their assets which could lead to significant swings in the London property market while the wider UK market may remain on a broader upward path.
The UK government is well aware of the safe haven status which many property investors have labelled London with although in reality there is little they can do to force property investors to rent out their properties. On the flip side of the coin, this potentially plays into the hands of some in government, and some in opposition, who have been calling for overseas property investors to face greater taxes with regards to their investments.
Are greater taxes the answer?
While there is no doubt that taxing overseas investors with regards to their London property investments would have a sobering impact in the short term, will it really have an impact in the longer term?
The UK property market, and in particular London, has been one of the favourites for international real estate investors for many years now. There are various tax incentives for overseas investors looking towards London and closing some of these loopholes may well raise additional taxes for the government but will it really kill demand for London property assets?
Conclusion
It is concerning to learn that many areas of London have an array of properties which are empty and have become safe haven investments for overseas investors. The government will huff and puff, opposition leaders will call for greater taxes, but the reality is that the UK government is in a difficult situation. Raising taxes too high would scare international investors, leaving taxes to low could lead to ghost towns within London so it will be tricky trying to find a balance to maintain the status quo going forward.