Real Estate Investor Magazine South Africa July 2014 | Page 52

LONDON

BY MIKE SMUTS

The London Paradox
Attractive opportunities for investors

W

hen the UK’s long-bubbly housing market
slumped in 2008, few expected a quick
rebound. After the previous great houseprice crash in 1989, it took almost a decade for
prices to recover to their previous heights, even in
nominal terms.
Yet this time around, property prices have managed to
recuperate in almost half that time. In London, prices
are already 25% above their 2008 peak, and are now
rising at a rate of about 18% a year. The average home in
London now costs more than £450,000 (R8.2 million),
and in some neighbourhoods the average house price is
more than ten times the average income.
What explains this dramatic recovery and the rising
prices in London in particular?

Driving recovery
One major factor is financial. A simple assumption
many made at the time of the global financial crisis was
there would have been the inevitable fall of previously
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July 2014 SA Real Estate Investor

mighty financial centres, such as London. After all,
mighty institutions like Lehman Brothers collapsed
and bankers in Canary Wharf were suddenly carrying
cardboard boxes instead of expensive briefcases.
Yet, instead of being the biggest crash London has
ever had, in some ways London has arguably had the
best five or six years in recent history.
Many put this down to external factors, such as
political and economic uncertainty around the globe,
and the consequent flood of foreign wealth into London
in search of a safe haven.
While this undoubtedly played a massive role in the
economic recovery, it is only part of the reason rather
than the whole.

A distinct market
The fact is that London’s economic growth has broken
free from the rest of the UK – a simple by-product of
the increasingly uneven and clustered nature of the
global economy.
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