Will falling oil prices and EU QE pop London’s property investment bubble?

Will falling oil prices and EU QE pop London’s property investment bubble?

Property investors may have to forget about prime London property, with rises set to come to a halt this year.

Summary:

  • Almost three-quarters of prime London property is purchased by overseas buyers
  • Wider economic conditions may mean that prices in London fall dramatically this year
  • Property investors are set to focus on the UK’s regional markets this year

Over the past two years London has led the way in the UK’s property market. Recent research from Savills found the value of property in the capital now eclipses Brazil’s GDP.

It has been the influx of money from overseas that has been one of the major instigators of this bubble, with nearly three-quarters of the property sold in central London over the past few years being bought by non-UK residents.

But now that the oil price has dwindled and the European Central Bank has embarked on a new phase of quantatitive easing (QE), foreign buyers from Europe and Russia in particular may no longer find London so appealing.

This week Dr Matthew Partridge argued that when the prime bubble pops, prices may not just stabilise, they could fall dramatically.

Writing in MoneyWeek he stated: “This notion of flat prices could be rather too cosy a view. Markets – particularly grossly overvalued ones – rarely just flatline. They tend to overshoot on the upside and then undershoot to the downside once they lose momentum.”

He cites demographics expert Paul Hodges, who suggested prime London property could fall as much as much as 50%.

UK property investment will remain a safehaven asset due to the political mandate to keep prices high, but London may no longer be the first-choice location. This view coincides with Hometrack’s latest data, which shows there are now two distinct options for property investment in the UK. The group showed that assets in the north of the country are appreciating at a much greater pace than the already high-priced southern properties.

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