Mike Strange

The slow-moving train wreck has entered the station




For quite some time I have been of the (strong) opinion that the London property market has attained a status that I would consider to be extremely fragile.

In the last few weeks, we have seen evidence (via several bridging loan enquiries) that this fragility is about to be exposed.

It is relatively clear that the London – and the South East to a large degree – property markets are supported by heavy foreign investment. The background to this investment inflow started during the crisis of 2007/11 when investors were simply looking for a safe haven to protect their capital. This led many investors to beat a path to the door of London’s prime property market. It was this sharp inflow that supported the London property market in 2009 to 2010 and ensured that any house price falls were relatively short in duration. After this initial inflow, we entered the era of quantitative easing. Essentially, investors around the globe were suddenly able to borrow at the lowest interest rates in living memory – and they did, in huge volumes.

These abundant cash piles in the hands of global investors led to a further inflow into the London property market in 2011 to 2016. This inflow was something of a self-fulfilling prophecy as investors chased the returns provided by the rapidly increasing house prices. If you look around the London skyline, it is clear that this investment inflow also sparked a construction boom city wide, but particularly in east London and Battersea.

This month, we have seen evidence of a rapid cooling in these markets. We saw an investor who agreed to purchase a Battersea apartment off-plan for around £660,000 two years ago. To be more precise, this investor had purchased this right-to-buy the apartment from another investor – who in turn had purchased it from another investor (don’t believe anyone who tells you that this investment inflow isn’t largely pure speculation). Our investor had put down a deposit of £130,000. His estimation was that it would be worth around £750,000 to £800,000 once completed (which it now is). However, a recently commissioned valuation report put the value at only £575,000, which led to an inability to complete and a likely total loss of the deposit paid. 

This month also saw one of our clients sell two relatively recently acquired apartments in a newly constructed east London high rise for £550,000 each. He purchased these apartments off-plan about two years ago for £685,000 each.

I have listened to property experts tell me that there will be no over-supply in these areas and that all of the apartments are “sold”. I disagreed with them then, and now my opinion is stronger than ever. These markets are going to re-price downwards, aggressively. If this knocks foreign investor confidence (which it must), then this could have a substantial knock-on effect for London generally.

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