London: The real estate market is booming, but for how long?

London is experiencing a construction boom, the real estate market is expanding. The British metropolis is leaving the rest of the country in the dust. While the average prices for residential real estate in London are now 50 percent higher than in 2007 – the last peak before the economic crisis – they have only risen by seven percent in the rest of the country. In some regions the prices are even below pre-crisis levels.

For how long is the real estate market booming? - Engel & VölkersThus it is not surprising that many foreign investors are flocking to the Thames to invest in real estate. What is pleasing to investors, however, is a cause of concern for many of the inhabitants of the British capital. This is because even average earners feel “priced out” by the rising rents, and are forced to move away from their neighbourhoods to the city outskirts for financial reasons. Many small shops are also closing down because they can no longer afford the increases in rent. There is a risk of London losing its mix of creative and business talent that makes the city so appealing worldwide.

Despite fears in the markets of another recession and financial crisis that could impact the real estate market, the demand for houses in the 8.6 million metropolis is still on the rise. While international investors continue to invest in luxury real estate, tens of thousands of Londoners are trying to break into the first home owner’s market.

The reason: Tenants in the United Kingdom do not enjoy the same legal protection as in Germany, contracts are usually only valid for one year and can quickly be cancelled. Last year, rents in London increased by 12 per cent on average, which is precisely why so many people who work in London are keen on owning a house or an apartment.

Thanks to various government guarantees, buyers only need to lay down a deposit of five percent to buy a new apartment. This increases demand significantly, causing prices to rise even further, even in those parts of the city that were once considered less desirable.

In Lewisham for example, in the south-east of London, the value of a one bedroom apartment increased by 33 percent in three years. No wonder, when loans are relatively easy to come by during such phases of value appreciation. However, many Londoners cannot manage to save up even this relatively small deposit amount due to them having to spend a very high proportion of their income on astronomical rent.

However, there are signs that the real estate bubble is slowly deflating, and that the speed at which prices are increasing is slowing down. The number of luxury property sales dropped by almost a fifth in the second half of 2015, and prices decreased by ten percent compared with the previous year.

The government has decided to raise the tax on second homes in order to avoid buildings being uninhabited in the luxury neighbourhoods in the west of the city due to property owners living and working abroad.

If you would like to buy or sell real estate in London, Engel & Völkers will support you every step of the way. Our partners in the elegant neighbourhoods of  Chelsea and Mayfair are experts in the field of real estate and will provide you with all the information you need to make well-informed investment decisions. 

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