Canary Wharf is the latest British property asset to be snapped up by foreign investors.Should we welcome them, or send them packing? Matthew Partridge reports.
What's happened with Canary Wharf?
Property group Songbird Holdings which owns most of Canary Wharf has reluctantly accepted a takeover bid worth £2.6bn, after initially refusing an offer in December. The buyer is a joint venture between the Qatar Investment Authority (QIA), the sovereign wealth fund of Qatar, and Canadian firm Brookfield.
This is yet another major acquisition by the QIA, which has already bought an estimated £30bn of British assets over the past few years. These include substantial stakes in the London Stock Exchange, Barclays, Sainsbury's and Heathrow Airport, as well as a sizeable London property portfolio.
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What other property does Qatar own?
The department store Harrods, the US Embassy building in Grosvenor Square (and the nearby waterside area), the Shell Centre, Chelsea Barracks and the Intercontinental Hotel in Park Lane, among others. There's also the 87-story Shard, which was acquired by the Qatari government in 2009 (in conjunction with the Sellar Property Group), and opened in 2013.
The same year, the Qatari royal family spent £120m buying two mansions in Regent's Park; plans to combine then into a single palace were recently rejected by Westminster Council on the grounds that this would reduce the total housing stock. The QIA is also developing the Olympic Village in Stratford.
Are the Qataris the only big foreign buyers?
There are no official figures on foreign ownership. However, estate agent London Property Partners estimated in 2013 that foreigners bought around 65%-70% of prime London property. And a survey from Knight Frank last year suggests that foreigners account for around 70% of prime new-build property sales in central London, and half of the overall central London prime market. But Knight Frank points out that people born overseas are counted as "foreign" even if they are long-term residents.
With 38% of central London's total population born outside the UK, they argue that relying on nationality is misleading. However, even using their preferred measure, over a quarter of new prime buyers in central London are not resident in the UK. The trend is even bigger in the "super-prime" market of properties worth more than £10m, where Russian buyers alone account for 20% of the market.
Why is London so attractive?
London has always been an attractive city for the super-rich, thanks to its cultural attractions, shopping opportunities and political stability. The UK tax system is also a lure: the "non-doms" arrangement allows wealthy foreign residents to avoid taxes on their non-UK income in return for an annual payment of up to £30,000.
However, the increasing number of non-resident buyers suggests that many view a house or a flat in the capital as an investment, not a place to live, especially at a time when there has been uncertainty about the future of the European single currency.
Is this a good thing?
One big concern is that foreign investment is pushing up prices, crowding out Londoners. However, defenders of foreign ownership argue that the super-rich create jobs through their purchases of goods and services. In a report for Westminster Council, Ramidus Consulting estimates that those who live in properties worth between £5m and £15m spend an average of £2.7m a year, while those in places valued at more than £15m spend £4.5m. However, there is evidence that many of these foreign owners are leaving their houses empty for some of the year.
Kensington and Chelsea have an estimated 22,000 empty houses, the 11th largest in the country (the top ten are all in the north of England). Some businesses have complained that this absentee ownership means that less money is spent locally.
What are politicians doing in response?
A few politicians continue to defend foreign investment in London property. Boris Johnson, the mayor of London, has dismissed critics as "nuts", arguing that the investment provides money to expand the housing stock. However, his view is clearly in the minority. In December 2013 George Osborne imposed a capital gains tax (CGT) of 15% on the sale of property by overseas owners, which is due to come into effect in April (currently primary residences are exempt from CGT).
He has increased the charge on non-doms who have stayed in this country for more than 20 years to £90,000. Even Johnson agrees that existing Londoners should get some form of "first, or equal-first" refusal of any new properties. But since he continues to promote London property at trade fairs, many have questioned his sincerity.
Is the tide about to turn?
Although the Qatari buying spree continues, the tide may beabout to turn. The Centre for Economic and Business Research,an economics consultancy, says that "foreign demand forproperty is expected to decline as London property prices arenow above their pre-crisis peaks in US dollar and euro terms".
It thinks that the possibility of a "mansion tax" is "partiallytarnishing the country's safe-haven status", while "slowingeconomic growth abroad, most notably in Russia, is likely tolimit foreign purchases of prime London properties". But otherexperts are less sanguine. Academics at Imperial College andthe University of Cyprus fear the UK could end up like Cyprus,where foreign demand including, ironically, British buyers created a damaging property bubble.
