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)

Photo: Getty
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The Prevent strategy needs a rethink, not a rebrand

A bad policy by any other name is still a bad policy.

Yesterday the Home Affairs Select Committee published its report on radicalization in the UK. While the focus of the coverage has been on its claim that social media companies like Facebook, Twitter and YouTube are “consciously failing” to combat the promotion of terrorism and extremism, it also reported on Prevent. The report rightly engages with criticism of Prevent, acknowledging how it has affected the Muslim community and calling for it to become more transparent:

“The concerns about Prevent amongst the communities most affected by it must be addressed. Otherwise it will continue to be viewed with suspicion by many, and by some as “toxic”… The government must be more transparent about what it is doing on the Prevent strategy, including by publicising its engagement activities, and providing updates on outcomes, through an easily accessible online portal.”

While this acknowledgement is good news, it is hard to see how real change will occur. As I have written previously, as Prevent has become more entrenched in British society, it has also become more secretive. For example, in August 2013, I lodged FOI requests to designated Prevent priority areas, asking for the most up-to-date Prevent funding information, including what projects received funding and details of any project engaging specifically with far-right extremism. I lodged almost identical requests between 2008 and 2009, all of which were successful. All but one of the 2013 requests were denied.

This denial is significant. Before the 2011 review, the Prevent strategy distributed money to help local authorities fight violent extremism and in doing so identified priority areas based solely on demographics. Any local authority with a Muslim population of at least five per cent was automatically given Prevent funding. The 2011 review pledged to end this. It further promised to expand Prevent to include far-right extremism and stop its use in community cohesion projects. Through these FOI requests I was trying to find out whether or not the 2011 pledges had been met. But with the blanket denial of information, I was left in the dark.

It is telling that the report’s concerns with Prevent are not new and have in fact been highlighted in several reports by the same Home Affairs Select Committee, as well as numerous reports by NGOs. But nothing has changed. In fact, the only change proposed by the report is to give Prevent a new name: Engage. But the problem was never the name. Prevent relies on the premise that terrorism and extremism are inherently connected with Islam, and until this is changed, it will continue to be at best counter-productive, and at worst, deeply discriminatory.

In his evidence to the committee, David Anderson, the independent ombudsman of terrorism legislation, has called for an independent review of the Prevent strategy. This would be a start. However, more is required. What is needed is a radical new approach to counter-terrorism and counter-extremism, one that targets all forms of extremism and that does not stigmatise or stereotype those affected.

Such an approach has been pioneered in the Danish town of Aarhus. Faced with increased numbers of youngsters leaving Aarhus for Syria, police officers made it clear that those who had travelled to Syria were welcome to come home, where they would receive help with going back to school, finding a place to live and whatever else was necessary for them to find their way back to Danish society.  Known as the ‘Aarhus model’, this approach focuses on inclusion, mentorship and non-criminalisation. It is the opposite of Prevent, which has from its very start framed British Muslims as a particularly deviant suspect community.

We need to change the narrative of counter-terrorism in the UK, but a narrative is not changed by a new title. Just as a rose by any other name would smell as sweet, a bad policy by any other name is still a bad policy. While the Home Affairs Select Committee concern about Prevent is welcomed, real action is needed. This will involve actually engaging with the Muslim community, listening to their concerns and not dismissing them as misunderstandings. It will require serious investigation of the damages caused by new Prevent statutory duty, something which the report does acknowledge as a concern.  Finally, real action on Prevent in particular, but extremism in general, will require developing a wide-ranging counter-extremism strategy that directly engages with far-right extremism. This has been notably absent from today’s report, even though far-right extremism is on the rise. After all, far-right extremists make up half of all counter-radicalization referrals in Yorkshire, and 30 per cent of the caseload in the east Midlands.

It will also require changing the way we think about those who are radicalized. The Aarhus model proves that such a change is possible. Radicalization is indeed a real problem, one imagines it will be even more so considering the country’s flagship counter-radicalization strategy remains problematic and ineffective. In the end, Prevent may be renamed a thousand times, but unless real effort is put in actually changing the strategy, it will remain toxic. 

Dr Maria Norris works at London School of Economics and Political Science. She tweets as @MariaWNorris.