Is London's property market about to grind to a halt?

A slump in the pound could slow down the market.

London estate agents do not lose a minute pumping out press releases in reaction to new laws or regulations that appear in some way to threaten their business.

The format for these releases is always the same: when the new law is proposed, the agents cry in agony that it cannot possibly be allowed to happen because it will destroy the property market. Then when it does happen, they put out another set of press releases claiming it really won’t make much difference after all and that the party can go on.
So it was with the EU’s campaign to slash bank bonuses. When first mooted, this was portrayed as a measure that would destroy the London market. According to figures from Savills, 52 per cent of the money that goes into the prime central London property market and 62 per cent of the money that goes into the south-west London market for houses worth £2 million and above originates in the bonus packet of somebody who works in the financial sector.

That is an awful lot of money. Take it away and you would have an awful lot of unsold properties. But now that the bonus cap has made it into EU law — the European Commission to include in its Capital Requirements Directive a clause limiting bank employees to a bonus of no more than 100 per cent of their annual salary, or 200 per cent if they receive special permission from their shareholders — the well-groomed Ruperts and Samanthas who make their living selling top-end properties don’t seem too bothered.

They have a point. As with so much the EU does, there is a gaping hole in the proposal to limit the size of bank bonuses: it doesn’t say anything about limiting salaries. Rich people are in the habit of employing brainy accountants to pick at loopholes, but in this case there doesn’t seem to be much need to spend a great deal on accountants’ fees. Why not just take your bonus in twelve monthly instalments and call it a salary rise instead? Logically, banks will move to a model of remuneration based around annually renegotiated salaries.

What is potentially more damaging is the banks’ own decision to cut their remuneration pools. Bonuses have already fallen sharply — by 9 per cent last year. As they did, so buyers in the prime central London market became increasingly reliant on borrowed money.

According to Cluttons, 74 per cent of buyers bought with a mortgage in 2012, up from 49 per cent in 2011. Perversely, the EU’s rules might actually make it easier for some bankers to buy high-end properties. If it leads to an increase in salaries to compensate for a decrease in bonuses, it might make it easier for bankers to persuade lenders to give them large mortgages, the assumption being, rightly or wrongly, that while a bonus is a one-off, a higher salary will go on year after year.

If I made my money selling London property, the other thing which would worry me is the slide in sterling. Over the past decade, the prime London market has become ever more reliant on foreign money. One estate agent in Mayfair claims not to have sold a single property to a Briton since 2005.

Developers of London apartment blocks no longer bother hawking their wares to British buyers, instead folding up the plans and taking them to roadshows in Singapore and Hong Kong. Buyers from those two countries accounted for 23 per cent and 16 per cent respectively of all new building sales in central London, according to Knight Frank.

Thanks to their interest, property prices in London rose by an average of more than 7 per cent last year. If that seems a good return — certainly compared with property outside London — it has to be remembered that the dynamics of the British property market are quite different from the perspective of an overseas buyer. If you are out in Singapore, that 7 per cent profit has been almost completely wiped out by the slide in the value of the pound, which a year ago was trading at over two Singapore dollars but is now down to 1.87.

If you are expecting the pound to slide, it makes no sense to invest in London property. When it slumped in 2008, London property prices sank sharply with it. Now that expectations are forming once more that the pound will sink some way into the future, overseas investors have a double incentive to bail out of the market. If fellow overseas investors lose interest in London’s new-build market, it is hard to see how frothy prices can be sustained. Falling prices, compounded with a currency loss, could make a very nasty dent in their investment.

To which, inevitably, the estate agents have an answer: the London property market, they say, holds more attractions than simply financial gain. London is a pleasant and safe environment in which to live and own property. The world’s wealthy feel at home in London. Of all property hotspots, it is the one where you can feel most secure that your apartment will not suffer collateral damage from tanks rolling down the streets.
Perhaps, but I can’t help thinking that the promise of capital gains comes into the calculations, too. If you were especially keen to live somewhere but were convinced that the value of the property there was going to fall, you might just be minded to rent instead.

The boom in top-end London property over the past four years has been stoked partially by quantitative easing — printing money, to you and me. That has kept asset values pumped up. But you can’t keep inflating a market without consequences, and the debasement of the currency is ultimately undermining the value of investments made by overseas investors. Property might still be preferable to cash in many ways, but if you want an inflation-proof asset it is better still to have one you can at least stuff into a bag and take out of a country with a soft currency.

Photograph: Getty Images

Ross Clark is the author of How to Solve It, which is published by Harriman House (harriman-house.com)

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David Osland: “Corbyn is actually Labour’s only chance”

The veteran Labour activist on the release of his new pamphlet, How to Select or Reselect Your MP, which lays out the current Labour party rules for reselecting an MP.

Veteran left-wing Labour activist David Osland, a member of the national committee of the Labour Representation Committee and a former news editor of left magazine Tribune, has written a pamphlet intended for Labour members, explaining how the process of selecting Labour MPs works.

Published by Spokesman Books next week (advance copies are available at Nottingham’s Five Leaves bookshop), the short guide, entitled “How to Select or Reselect Your MP”, is entertaining and well-written, and its introduction, which goes into reasoning for selecting a new MP and some strategy, as well as its historical appendix, make it interesting reading even for those who are not members of the Labour party. Although I am a constituency Labour party secretary (writing here in an expressly personal capacity), I am still learning the Party’s complex rulebook; I passed this new guide to a local rules-boffin member, who is an avowed Owen Smith supporter, to evaluate whether its description of procedures is accurate. “It’s actually quite a useful pamphlet,” he said, although he had a few minor quibbles.

Osland, who calls himself a “strong, but not uncritical” Corbyn supporter, carefully admonishes readers not to embark on a campaign of mass deselections, but to get involved and active in their local branches, and to think carefully about Labour’s election fortunes; safe seats might be better candidates for a reselection campaign than Labour marginals. After a weak performance by Owen Smith in last night’s Glasgow debate and a call for Jeremy Corbyn to toughen up against opponents by ex Norwich MP Ian Gibson, an old ally, this pamphlet – named after a 1981 work by ex-Tribune editor Chris Mullin, who would later go on to be a junior minister under Blai – seems incredibly timely.

I spoke to Osland on the telephone yesterday.

Why did you decide to put this pamphlet together now?

I think it’s certainly an idea that’s circulating in the Labour left, after the experience with Corbyn as leader, and the reaction of the right. It’s a debate that people have hinted at; people like Rhea Wolfson have said that we need to be having a conversation about it, and I’d like to kickstart that conversation here.

For me personally it’s been a lifelong fascination – I was politically formed in the early Eighties, when mandatory reselection was Bennite orthodoxy and I’ve never personally altered my belief in that. I accept that the situation has changed, so what the Labour left is calling for at the moment, so I see this as a sensible contribution to the debate.

I wonder why selection and reselection are such an important focus? One could ask, isn’t it better to meet with sitting MPs and see if one can persuade them?

I’m not calling for the “deselect this person, deselect that person” rhetoric that you sometimes see on Twitter; you shouldn’t deselect an MP purely because they disagree with Corbyn, in a fair-minded way, but it’s fair to ask what are guys who are found to be be beating their wives or crossing picket lines doing sitting as our MPs? Where Labour MPs publicly have threatened to leave the party, as some have been doing, perhaps they don’t value their Labour involvement.

So to you it’s very much not a broad tool, but a tool to be used a specific way, such as when an MP has engaged in misconduct?

I think you do have to take it case by case. It would be silly to deselect the lot, as some people argue.

In terms of bringing the party to the left, or reforming party democracy, what role do you think reselection plays?

It’s a basic matter of accountability, isn’t it? People are standing as Labour candidates – they should have the confidence and backing of their constituency parties.

Do you think what it means to be a Labour member has changed since Corbyn?

Of course the Labour party has changed in the past year, as anyone who was around in the Blair, Brown, Miliband era will tell you. It’s a completely transformed party.

Will there be a strong reaction to the release of this pamphlet from Corbyn’s opponents?

Because the main aim is to set out the rules as they stand, I don’t see how there can be – if you want to use the rules, this is how to go about it. I explicitly spelled out that it’s a level playing field – if your Corbyn supporting MP doesn’t meet the expectations of the constituency party, then she or he is just as subject to a challenge.

What do you think of the new spate of suspensions and exclusions of some people who have just joined the party, and of other people, including Ronnie Draper, the General Secretary of the Bakers’ Union, who have been around for many years?

It’s clear that the Labour party machinery is playing hardball in this election, right from the start, with the freeze date and in the way they set up the registered supporters scheme, with the £25 buy in – they’re doing everything they can to influence this election unfairly. Whether they will succeed is an open question – they will if they can get away with it.

I’ve been seeing comments on social media from people who seem quite disheartened on the Corbyn side, who feel that there’s a chance that Smith might win through a war of attrition.

Looks like a Corbyn win to me, but the gerrymandering is so extensive that a Smith win isn’t ruled out.

You’ve been in the party for quite a few years, do you think there are echoes of past events, like the push for Bennite candidates and the takeover from Foot by Kinnock?

I was around last time – it was dirty and nasty at times. Despite the narrative being put out by the Labour right that it was all about Militant bully boys and intimidation by the left, my experience as a young Bennite in Tower Hamlets Labour Party, a very old traditional right wing Labour party, the intimidation was going the other way. It was an ugly time – physical threats, people shaping up to each other at meetings. It was nasty. Its nasty in a different way now, in a social media way. Can you compare the two? Some foul things happened in that time – perhaps worse in terms of physical intimidation – but you didn’t have the social media.

There are people who say the Labour Party is poised for a split – here in Plymouth (where we don’t have a Labour MP), I’m seeing comments from both sides that emphasise that after this leadership election we need to unite to fight the Tories. What do you think will happen?

I really hope a split can be avoided, but we’re a long way down the road towards a split. The sheer extent of the bad blood – the fact that the right have been openly talking about it – a number of newspaper articles about them lining up backing from wealthy donors, operating separately as a parliamentary group, then they pretend that butter wouldn’t melt in their mouths, and that they’re not talking about a split. Of course they are. Can we stop the kamikazes from doing what they’re plotting to do? I don’t know, I hope so.

How would we stop them?

We can’t, can we? If they have the financial backing, if they lose this leadership contest, there’s no doubt that some will try. I’m old enough to remember the launch of the SDP, let’s not rule it out happening again.

We’ve talked mostly about the membership. But is Corbynism a strategy to win elections?

With the new electoral registration rules already introduced, the coming boundary changes, and the loss of Scotland thanks to decades of New Labour neglect, it will be uphill struggle for Labour to win in 2020 or whenever the next election is, under any leadership.

I still think Corbyn is Labour’s best chance. Any form of continuity leadership from the past would see the Midlands and north fall to Ukip in the same way Scotland fell to the SNP. Corbyn is actually Labour’s only chance.

Margaret Corvid is a writer, activist and professional dominatrix living in the south west.