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The trouble with London property

If stock market and property prices are to be believed, the international financial world is back to where it was seven years ago, which either means good times have returned or we are exactly where we were just before the 2008 GFC.


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Tim, Regarding your article on London Property prices and threats to the World Economy, the business mood in London is buoyant, with manufacturing and services both increasing month on month with unemployment falling to below the Bank of England target rate to raise interest rates. The IPO market has been very strong for 18 months and Sterling keeps strengthening. The UK manufacturing industry has risen significantly to fill the gap left by financial services and the UK has a very strong engineering sector. Even German car manufacturers are increasing production in the UK, which compares positively to the Australian situation. Now, London property prices are out of reach of most UK people but London is not simply a British city, it is an International city where on average over the past 25 years the level of ownership by foreigners has been above 40% by value. The property value of the two most expensive London Boroughs, Westminster and Chelsea & Kensington combined, exceeds the entirety of the rest of the United Kingdom as foreigners have flocked to those parts of London and who see London as a more friendly environment to foreigners than almost any other large International City. Even Karl Lagerfield, the Head of Chanel has moved to London on the basis that he believes it is a better place to live than Paris Whilst the UK banks now have much higher affordability stress test requirements and consequently the UK mortgage rate has dropped significantly since these measures were introduced earlier this year, the rise of London property prices is not impacted by average affordability but by demand by foreigners looking to move money out of their own country into a stable environment. . So, given a large part of London is owned by Foreigners, many of whom don't use mortgages, then the risk to Banks is much less than your article indicates. Further, the risk contained in homeowners using the equity in London homes as collateral for loans in other areas is also diminished by the simple fact that many homeowners in London are foreigners who may not have any mortgage. Whilst Gold may be a store of wealth in uncertain times, so to is London property in the eyes of many foreigners who see risk in holding US Dollars , Euros, Dinars, Riyals, Roubles, Rupees or Renminbi due to central bank or government actions. It is the threats implicit in the World Economy that benefits London property prices rather than London property prices threatening the World Economy. Gavin Rezos, London

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