Foreign interests using city as safe haven are making city ‘too hot’ for UK investors, Dev Secs group director says
The London property market is no longer a sensible investment for UK developers as long as sovereign wealth funds and global billionaires continue to treat it as a cash haven, Development Securities director Matthew Weiner has said.
Weiner believes London has become a haven for billionaires storing their money in fear of it being taken by their home governments, while huge sovereign wealth funds from the Middle East, China and Europe have taken advantage of beneficial currency plays to store their money in London property during the downturn.
Weiner said: “Oligarchs and Chinese, who don’t trust their own governments not to grab their money at some point, treat the London property market like gold bars and are happy with a 5% return when sensible investors in the UK need to find 10% - 15% returns. Sovereign wealth funds see London as a safe bet, and that contributes to keeping returns relatively low, which means central London is not an investment for firms seeking to generate strong returns for investors.”
He described London as “far too hot” and said that returns of 5% were no longer enough for the company’s investors. The company is now looking to other major cities, including Dublin and Manchester, to provide a higher rate. “That’s where we can get the 10%-15% returns our shareholders expect,” he said.
Overseas buyers have poured into the Square Mile since the Big Bang in the 1980s, and the financial crisis exacerbated London’s status as a safe haven for investment.
In 1980, just 8% of the City’s office buildings were held by overseas owners, but this has increased to more than 50%. Landmark buildings owned by foreign investors include the Lloyd’s Building, Bishops Square and 30 St Mary Axe (pictured).
The capital’s residential market shows an even greater concentration of foreign investment. A report from the British Property Federation looking at who bought the 21,300 new build homes in London last year showed that 61% of them were bought by investors.
However, there are signs that overseas investors’ interest may be cooling towards the London housing market.
The city’s status as one of the world’s leading investment safe havens is under threat from tax rhetoric, a strengthening pound, and Bank of England’s interest rate policy.
Figures from Savills predict that prime property values in mid-London will drop by 1% in 2015, the first decline since March 2009. Price growth also slowed from 3.1% in the last three months of 2013 to 2% in the first quarter of 2014.
While foreign property owners face the introduction of 28% capital gains tax in 2015, they can trade equities for free, and therefore investors may turn to the increasingly buoyant stock market.