The true effects of foreign investment on the UK property market

 

Investment in UK real estate by overseas buyers and foreign-owned companies has soared in recent years to reach billions of pounds, particularly in London. Could it have pushed up the country’s house prices?

Research from King’s College London, which has analysed Land Registry data, has found that foreign investment in the UK property market has bumped house prices up by more than 20% over the past 15 years.

The study compared average property prices in the UK in 2014, using the Land Registry’s information on sold house prices, which came in at £215,000, with the prices paid in 1999, and found that they had more than tripled from £70,000. When considering foreign investment, the study estimates that property prices in 2014 would have been just £174,000 on average had it not been for the additional overseas investment – an overall price difference of around 21%.

Reducing homeownership

Regionally, there are huge variations, with the majority of foreign investment being concentrated in London and the south-east. In Kensington and Chelsea, for example, a prime London borough where a huge number of properties are owned by investors from overseas, average homes fetched £1.3m in 2014. However, it was noted that a “trickle down” effect from the rising prices in London meant that even houses at the bottom of the pricing scale had seen their values pushed up, with major cities in the north of England such as Manchester and Liverpool seeing price inflation linked to foreign investment.

Filipa Sá of King’s College London said: “One of the factors behind house price growth in countries such as the UK, Australia and Canada is demand from foreign investors.

“This study looks at data for the UK and argues that foreign investment had a significant and positive effect on house price growth in the last 15 years. Foreign investment is also found to reduce the rate of homeownership.”

Changing UK policies

For every one percentage point added to the share of residential property owned by an overseas entity, according to the research, house prices increase by around 2.1%.

Professor Sá added: “These findings are useful to inform the policy debate on the impact of foreign investment on the housing market. This topic has attracted the attention of the mayor of London, Sadiq Khan, who has recently launched an inquiry into the consequences of foreign property ownership in the capital. Other countries, such as Australia, Switzerland and Canada, have also been debating this issue and have introduced policies to control foreign investment.”

New laws are being brought in, along with the introduction of a property register, which will mean that all foreign companies must be transparent about the ultimate owners of properties they possess in the UK, and must be able to disclose the source of the funds used to make the purchases. Read more here.

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The true effects of foreign investment on the UK property market

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