The Effects of Overseas Investment on London's Housing Market Report

This report delves into the effects of international investment on the London residential market. It begins by highlighting the significance of overseas investors in shaping the local housing market, particularly in the context of fluctuating property prices influenced by factors like the COVID-19 pandemic and land availability. The study, based on secondary research, focuses on evaluating the role of overseas investors, determining the social and economic aspects of their investment, and critically assessing its implications on price, demand, and supply within the London housing sector. The report explores the dynamics of overseas buyers, especially in Central London and new constructions, emphasizing their impact on property prices and pre-sales. It examines the motivations of these investors, including letting out properties and family accommodation, and considers the impacts of off-plan sales and occupancy rates. Ultimately, the analysis indicates that international investment influences the speed and volume of new construction, and while it may impose certain costs, the positive impacts on the housing market are substantial.

International Investment in London
Residential Market effect

Table of Contents
INTRODUCTION...........................................................................................................................2
Presenting and evaluating the role of overseas Investors in London Housing Market...............2
REFERENCES................................................................................................................................6

INTRODUCTION
Foreign investment is contributing the major portion upon the local housing demand’s
prices in the London’s housing market. This prices are completely depend upon the market’s
such that in the current scenario, the prices of the London is decreases because of the pandemic
disease i.e. Coronavirus. But secondary research shows that in London, the prices are increases
as compared to the rest of Britain’s Economy. Further, the report off Kings College Housing is
also shows that houses price of UK is increasing from 1990 onward. While on the other side, on
supply side, lack of available land for construction and some regulatory constraints i.e. planning
delays and ban are also contribute to the house price appreciation. That is why, in 2004, the
government of UK review on housing supply and concluded that much higher rates of housing
building is necessary to reduce trend rate of house price growth.
That is why, the current study will also shed a light on the housing price of London and
determine whether international investment in London Housing market is beneficial or not.
Report main aim is to develop a deep understanding of London Housing market. Entire study is
based upon secondary research in which latest books, articles and Journals are chosen. For that
study will evaluate the role of overseas investors in London Housing market. Further, report will
also determine the social and economic aspects of international investment in London
Residential market and critically evaluate the implications of foreign investment in London’s
housing market on price, demand and supply.
Presenting and evaluating the role of overseas Investors in London Housing Market
The invitation to tender is known as an overseas buyers or else, they are the purchaser
who is resident overseas. Also, the sales of overseas buyers is higher because a briefing paper for
Parliament written that they overseas buyers is highest in Central London and declines rapidly
with a distance from a center (Eichengreen, Jungerman and Liu, 2020). Also, this proportion is
higher for new buildings as compared to existing units. The interview conducted under the article
in which top developers and other stakeholders are selected under a small survey in which it is
clearly analyzed that overseas sales are highest as compared to the business who are relatively
concentrated in the areas. Thus, it provide a clear indication of the relative importance of sales to
overseas buyers and their price point as well as special patterns.

As the secondary research also shows that prices of houses in London are continuously
increase because as per the foreign investment, it is estimated that property prices in 2014 were
around 174,000 pound which excluding the foreign investment. So there is a huge difference in
the foreign investment which is being focused in London such that prime London Borough in
which a large number of houses are owned by the overseas investor and these houses were also
sold up to 1.3 million pound in 2014 (Holthus, Kebschull and Menck, 2020). Therefore, this
figure shows that there is a high demand of foreign investment in London so that people use
these houses for their own use and there are large number of housing project in London are
introduce that are affordable for the people of London and this also shows the positive impact of
international investment in order to keep operating the market of Central London at the time of
critical times.
The information provided the major international estate agents suggested that London
overseas buyers accounted for fewer than 20% of sales of new- buildings. That is why, the sales
were higher in central London as compared to rest of the capitals (The role of Overseas investors
in London new – built residential market, 2017). Article also suggested that the role of overseas
investors for new homes in capital is important. Such that in 2015- 16, new house were
completed in London in which 17,000 were used for private sector. This figure is high as
compared to previous four years. The below graph also shown that the sales proportion of house
has risen with 13% from 1995.

The buyers are mostly from the Asia and Middle East who actually invest on the London
Property for three main reasons i.e. to let out, to accommodate their family or students and last is
London home are used for work related and vacation visit (Quan and Lin, 2020). Thus, the LSE
research also shows that more than 70% of them are highly agree that they purchase home to let
out. The article also suggested that the proportion of new residential units in London is bought
by overseas buyers. Such that about third of a sales is handled by the international estate agents
in between 2014 April to 2016 April and it is rose up to 50% only in Central London.
On the other side, some proportion of Unit is also left empty by overseas buyers because
occupancy rate for individuals schemes is normally up to 95% and also, there are no reason why
these places are left empty (Sotiropoulos, Rutterford and Keber, 2020). Only reason came i.e.
over- occupied by students, also the unit which is left empty is rented out with such a high
occupancy rate. While on the other hand, it is occupied only for some weeks.
Further, pre-sales are also plays an important role in order to facilitating development,
except for housing association and developers, most of the people said that they needed pre-
sales in order to make sure a pipeline of development (McKenzie and Atkinson, 2020). That is
why, some banks and other finance institutions are also required pre- sales before lending, but
actually developers needed pre- sales. It is so because it helps to reduce the risk which is linked
with the market volatility and completion of apartments. Further, there is another option
available i.e. off-plan sales which takes place two or more years before a completion and it is
used by the overseas buyers. Also, there are pre- sales to local buyers but it also happen later in
the development process. In addition to this, the practice of selling units before completing the
investors documents and put it in front of the first0 timer buyers is considered as a disadvantage.
That is why, it is consider as an issue related to financing structure of London’s Housing rather
that the overseas buyers.
So, the price paid by the overseas buyers and those paid by UK residents were on average
not hugely different. The research findings about the occupancy shows that it is not possible to
determine the occupancy of these particular units as well as the schemes in which they are
located. Also, the part of the market is also based upon the rental returns has very high level of

occupancy while some of the evidence of over- occupancy i.e. students. In addition to this, thee
overseas purchases do impose a cost on Londeners but they are unable to access because around
6% of the new- built units are belongs to private owners. Along with this, the cost is more than
the offset by a positive impact of pre- sales on the speed and volume of new construction of both
private and affordable new housing (DeVerteuil and Manley, 2017). This also affect on the
housing market, such that demand from overseas buyers for new property has a direct impact
upon the number of homes built. In this, the overseas buyers first set their preference i.e. term of
use of glass and size of units, number of rooms and then consider other key aspects. After that
the issue of price comes and that is why, it affect direct impact upon the London Housing
Market. However, the interest of overseas buyers is high for more apartments which are also
delivered at higher price points while on the other side, it is affected by the change in mix.
Therefore, the role of investor in London Housing Market is also depend upon the pre-
sales and off- plan sales because around 85% of the housing transaction in London involves the
existing stock. But the procedure of this is quite different in case of new- built. Such that off-
plan purchase usually transact at a discount to price on completion because the price of the
houses are generally increases as the nature of development firm is also ups (Scanlon and et.al.,
2017). But the plan for pre-sales and off- sales is different to the overseas investor’s perspective
or builder business model. Smaller firm or companies who put some units back for Help to Buy
do not rely on the pre- sales, while developed uses this plan because it helps them to secure
finance and also reduce risk as per the fluctuation in market as well. Further most of the banks
will not provide a scheme unless the overseas buyers are consider a pre- sales, while developers
who completely rely upon the debt finance are take money from bank around 40 to 60%. That is
why, pre- sales are also consider one of the most important part for London Developer’s business
model.

REFERENCES
Books and Journals
Eichengreen, B., Jungerman, W. and Liu, M., 2020. Brexit, the City of London, and the
prospects for portfolio investment. Empirica. 47(1). pp.1-16.
Holthus, M., Kebschull, D. and Menck, K. W., 2020. Multilateral investment insurance and
private investment in the Third World. Routledge.
Quan, R. and Lin, Z., 2020. Factors Driving Firms from Emerging Countries into the Global
Market: The Case of Chinese SMEs Entering the North East of England. In Start-Ups and
SMEs: Concepts, Methodologies, Tools, and Applications (pp. 1175-1192). IGI Global.
Sotiropoulos, D., Rutterford, J. and Keber, C., 2020. UK investment trust portfolio strategies
before the First World War. Economic History Review, pp.In-press.
McKenzie, R. and Atkinson, R., 2020. Anchoring capital in place: The grounded impact of
international wealth chains on housing markets in London. Urban Studies. 57(1). pp.21-38.
DeVerteuil, G. and Manley, D., 2017. Overseas investment into London: Imprint, impact and
pied-à-terre urbanism. Environment and Planning A. 49(6). pp.1308-1323.
Scanlon, K. and et.al., 2017. The role of overseas investors in the London new-build residential
market. LSE Consulting.
Online
The role of Overseas investors in London new – built residential market. 2017. [Online].
Available through: <https://www.london.gov.uk/moderngovmb/documents/s58640/08b2b
%20LSE%20Overseas%20Investment%20report.pdf>.