Foreigners Buying Half of London New Homes Prop Up Building

Half of London’s new-home buyers come from abroad as the city’s reputation as a safe haven attracts rising investment and sustains development.

Foreigners spent more than 3 billion pounds ($4.7 billion) on new homes in the U.K. capital last year, a 25 percent increase from 2011, broker Jones Lang LaSalle Inc. said in a statement today.

London has cemented its status as a haven for foreign wealth, with home buying stoking property prices and masking market weakness elsewhere, former Bank of England policy maker Sushil Wadhwani said last month. The pound’s decline has helped attract investors from Malaysia to Russia to developments like Battersea Power Station where about half of the project’s apartments have been sold in overseas markets.

“The London development market would be more challenging without demand from international investors,” Adam Challis, head of residential research at Jones Lang said in the statement. “Since development funding from banks declined due to the market downturn, international purchasers have provided a vital lifeline to maintain supply.”

Home prices in London rose 10.6 percent in the year through March 13, led by a 38.7 percent gain in the City of Westminster where prime districts Mayfair and Belgravia are located, Acadametrics Ltd. said in a study released today. Rents in London were about 8 percent higher in March than a year earlier, LSL Property Services Plc said last month.

Homebuilders Benefit

The Bloomberg U.K. Home Builders Index has gained 36 percent this year as rising sales to foreigners boosts shares. Berkeley Group Holdings Plc, the U.K.’s third-largest homebuilder by market value, sells 40 percent of its properties to people living outside the U.K., Managing Director Rob Perrins said in a February interview. Shares of the homebuilder, which has offices in Singapore, Dubai and Hong Kong, have increased by almost a 20 percent this year.

Only one in seven foreign buyers of new London homes will live in the property and the remainder plan to rent them out, Chicago-based Jones Lang said, citing a survey of buyers.

“Without international investors, most residential developments in London wouldn’t happen and the housing crisis would be even greater,” Challis said.

London’s population is set to increase by about 15 percent to 9.4 million by 2021, the city’s governing councils said in a February report. That will lead to a shortfall of about 250,000 homes by 2020, according to the report.

The pound has lost about 12.7 percent in the past five years against a trade-weighted basket of currencies, a Bank of England index shows.

Before it's here, it's on the Bloomberg Terminal.