Previously we’ve listed the reasons why London continues to go from strength to strength. Finding a positive opinion is not difficult but it’s worth stressing that every market has a downside risk, even if most people don’t like to talk about it! We always give our clients an unbiased view of the properties we view on their behalf, and we frequently dissuade clients from paying more than they should for a property being sold by unrealistic or opportunistic vendors.
We see the main risks as being the following…
1. Higher interest rates – buy to let investors may find that their rental income fails to cover their outgoings. This could be particularly damaging for those acquiring new build developments along the river.
2. Sovereign debt defaults – caused by the above – financial markets will freeze, banks default, currency collapse and generally we find ourselves back in 2008 or worse.
3. Government meddling – never to be underestimated . A mansion tax would disproportionately affect those over 60 years old creating forced sellers who are asset rich but cash poor (also see Demographics). Rules to deter overseas buyers would also heavily impact the London market which is dependent on this group.
4. Social unrest – the widening gap between the rich and poor could lead to rioting on a wider scale than previously seen. The political rhetoric is too focused on trying to redistribute money from the wealthy to the poor rather than focusing on how to increase entrepreneurialism, dynamism and a strong work ethic.
5. Demographics – 66% of the housing wealth in the UK is owned by the over 60’s. Their children’s generation as a whole cannot afford their parent’s houses. This will particularly affect areas outside of London which do not attract international buyers. However, at some stage the divergence in price between London and elsewhere will make London less attractive (for UK buyers). There is likely to be a surplus of £7m+ houses compared to buyers.
6. The City Loses its Status – this may be due to an asinine EU or UK regulation that makes London a less attractive place to do business. It happened to New York with regulations they brought in regarding foreign exchange transactions. Frankfurt, Singapore and Dubai, amongst others, are keen to attract more business and are having great success.
7. Employment stagnating – London is doing well but it has been a largely jobless recovery. If employment stagnates or falls who will rent all these new build properties?
8. Another Financial Crisis – Europe or elsewhere – might this be triggered by further bank write-downs in Spain, student and auto loans in America or the bond vigilantes? Maybe tapering of QE will suffice? Further cities in the UK declaring bankruptcy are yet another worry.
9. Sterling miraculously strengthens significantly – making London extremely expensive for international buyers who will then seek alternative countries and cities in which to invest.
10. Tallest building syndrome – the curse of the tallest building is well known: The Empire State Building, The Petronas Towers and the Burj Khalifa were all completed just before major crashes. The Shard is Europe’s tallest building…
11. Foxtons’ and now Rightmove’s proposed flotation – the last time Foxtons’ floated the market crashed. Is Foxton’s worth £500m?
For help finding your perfect home or investment in London, do get in touch with me, Miranda Ludlam, on firstname.lastname@example.org