Lost property: where have London’s overseas buyers gone?

11 October 2022 - 8:53 am

It has been almost a decade since the first apartments at Battersea Power Station went on sale. Such was the excitement about its redevelopment that buyers queued in the chilly dawn for the chance to pick up a £343,000 studio flat or a £6 million penthouse. Most were from overseas, and in four days in January 2013 they collectively spent £600 million.

These kinds of scenes are something London’s housebuilders and estate agents can today only dream of. Although we have moved on from worst ravages of the pandemic, and traveller numbers are very much in recovery, many foreign property buyers – for years the mainstay of prime London’s property market – remain missing in action.

According to research by real estate fund Alliance Fund, overseas buyers were at their busiest in prime London in 2018, responsible for 35 per cent of all sales and collectively spending an estimated £15 billion. This was, naturally, great news for estate agents’ commissions, but less thrilling for Londoners who coined the phrase ‘lights out London’ to describe swathes of the capital bought up and left empty by absentee owners.

In 2020, during the first onslaught of Covid-19, international buyers faded away. Unsurprisingly, as the world locked down, the number of deals fell – from around 31,000 in 2018 to just over 22,000. The total spend dipped to less than £11 billion.

But since then – despite restrictions lifting and travel resuming – interest from foreign buyers has remained distinctly muted. In 2021 they bought 23 per cent of prime London properties, spending just over £12 billion. And in the first half of this year their buyer share was down to 19 per cent, and a total spend of £3.2 billion.

This is a major problem for the prime London market, says Marc von Grundherr, director at Benham and Reeves. It has long relied upon overseas buyers to snap up its luxury apartments and stratospherically-priced superhouses. ‘There are developments in London where not a single owner has a British passport,’ he says. ‘They are incredibly important.’

What makes this particularly weird is that property in central London is, relatively speaking, a steal right now. Prime prices stand at 17.6 per cent below their 2014 peak. And the ongoing devaluation of sterling – from £1 being worth $1.42 in spring 2020 to around $1.11 today – means property can effectively be bought at a discount of around 20 per cent.

‘That is what everyone is banking on at the moment, but a lot of buyers are saying to me that they have already bought the sterling and are going to sit on it until they can get a good deal,’ says von Grundherr. ‘The whole market is challenging and very price dependent.’

Simon Tollit, partner at Tedworth Property, agrees that today’s market is very different to the cash-happy spending frenzy by international buyers which pulled London out of the doldrums between 2011 and 2014. ‘We are not at a time when people just paid whatever they had to, they are not coming over with blank cheques,’ he says. ‘They are viewing things from a very considered, sensible perspective, and there is at the moment a gulf between what vendors think their properties are worth and what buyers are willing to pay.’

Then of course there is Britain’s political and economic situation: Brexit fallout, high inflation, the collapse of the Johnson administration, the early failure of Trussonomics. Last week Knight Frank downgraded its house price forecasts, suggesting that prime London prices will rise a paltry 7.5 per cent between 2022 and 2026, falling 3 per cent next year before staging a modest recovery. ‘Political uncertainty does nobody any favours,’ says von Grundherr.

James Boulton-Lea, director of Strutt and Parker in Knightsbridge, says that only around 20 per cent of his buyers over the past few months have been from overseas. Pre-pandemic they made up close to half of his client list. He partly blames strict travel conditions in China and Hong Kong for the shortfall; many potential buyers have been deterred by the prospect of strict quarantine regulations when they return home.

Tollit thinks that the pandemic has wrought long-term changes on buyer requirements, too. ‘People have put down roots where they have been living for the past couple of years, and of course if they are looking to buy London is not their only option,’ he says. ‘Dubai is offering a ten-year “Golden Visa” to buyers right now, and the tax position there is more appealing.’

Many agents are excitedly talking up their sense of demand growing among overseas buyers – reporting more enquiries, and more viewings – but these kinds of claims have been flying around for the past 18 months and have not yet translated into actual sales.

Boulton-Lea says many clients are sitting on their hands – the prime London market has been bumping along the bottom, price-wise, since 2015, giving them little impetus to act. ‘People want to be in the market when it is bottoming out, and maybe they don’t feel we have reached that point yet,’ he says.