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 UK press’s timid reaction to Brexit is in marked contrast to the satire unleashed on Trump

For the BBC, it seems, to question leaving the EU is to be unpatriotic.

Faced with arguably their biggest political-cum-constitutional ­crisis in half a century, the press on either side of the pond has reacted very differently. Confronting a president who, unlike many predecessors, does not merely covertly dislike the press but rages against its supposed mendacity as a purveyor of “fake news”, the fourth estate in the US has had a pretty successful first 150-odd days of the Trump era. The Washington Post has recovered its Watergate mojo – the bloodhound tenacity that brought down Richard Nixon. The Post’s investigations into links between the Kremlin and Donald Trump’s associates and appointees have yielded the scalp of the former security adviser Michael Flynn and led to Attorney General Jeff Sessions recusing himself from all inquiries into Trump-Russia contacts. Few imagine the story will end there.

Meanwhile, the New York Times has cast off its image as “the grey lady” and come out in sharper colours. Commenting on the James Comey memo in an editorial, the Times raised the possibility that Trump was trying to “obstruct justice”, and called on Washington lawmakers to “uphold the constitution”. Trump’s denunciations of the Times as “failing” have acted as commercial “rocket fuel” for the paper, according to its CEO, Mark Thompson: it gained an “astonishing” 308,000 net digital news subscriptions in the first quarter of 2017.

US-based broadcast organisations such as CNN and ABC, once considered slick or bland, have reacted to Trump’s bullying in forthright style. Political satire is thriving, led by Saturday Night Live, with its devastating impersonations of the president by Alec Baldwin and of his press secretary Sean Spicer by the brilliant Melissa McCarthy.

British press reaction to Brexit – an epic constitutional, political and economic mess-up that probably includes a mind-bogglingly destructive self-ejection from a single market and customs union that took decades to construct, a move pushed through by a far-right faction of the Tory party – has been much more muted. The situation is complicated by the cheerleading for Brexit by most of the British tabloids and the Daily Telegraph. There are stirrings of resistance, but even after an election in which Theresa May spectacularly failed to secure a mandate for her hard Brexit, there is a sense, though the criticism of her has been intense, of the media pussy-footing around a government in disarray – not properly interrogating those who still seem to promise that, in relation to Europe, we can have our cake and eat it.

This is especially the case with the BBC, a state broadcaster that proudly proclaims its independence from the government of the day, protected by the famous “arm’s-length” principle. In the case of Brexit, the BBC invoked its concept of “balance” to give equal airtime and weight to Leavers and Remainers. Fair enough, you might say, but according to the economist Simon Wren-Lewis, it ignored a “near-unanimous view among economists that Brexit would hurt the UK economy in the longer term”.

A similar view of “balance” in the past led the BBC to equate views of ­non-scientific climate contrarians, often linked to the fossil-fuel lobby, with those of leading climate scientists. Many BBC Remainer insiders still feel incensed by what they regard as BBC betrayal over Brexit. Although the referendum of 23 June 2016 said nothing about leaving the single market or the customs union, the Today presenter Justin Webb, in a recent interview with Stuart Rose, put it like this: “Staying in the single market, staying in the customs union – [Leave voters would say] you might as well not be leaving. That fundamental position is a matter of democracy.” For the BBC, it seems, to question Brexit is somehow to be unpatriotic.

You might think that an independent, pro-democratic press would question the attempted use of the arcane and archaic “royal prerogative” to enable the ­bypassing of parliament when it came to triggering Article 50, signalling the UK’s departure from the EU. But when the campaigner Gina Miller’s challenge to the government was upheld by the high court, the three ruling judges were attacked on the front page of the Daily Mail as “enemies of the people”. Thomas Jefferson wrote that he would rather have “newspapers without a government” than “a government without newspapers”. It’s a fair guess he wasn’t thinking of newspapers that would brand the judiciary as “enemies of the people”.

It does seem significant that the United States has a written constitution, encapsulating the separation and balance of powers, and explicitly designed by the Founding Fathers to protect the young republic against tyranny. When James Madison drafted the First Amendment he was clear that freedom of the press should be guaranteed to a much higher degree in the republic than it had been in the colonising power, where for centuries, after all, British monarchs and prime ministers have had no qualms about censoring an unruly media.

By contrast, the United Kingdom remains a hybrid of monarchy and democracy, with no explicit protection of press freedom other than the one provided by the common law. The national impulse to bend the knee before the sovereign, to obey and not question authority, remains strangely powerful in Britain, the land of Henry VIII as well as of George Orwell. That the United Kingdom has slipped 11 places in the World Press Freedom Index in the past four years, down to 40th, has rightly occasioned outrage. Yet, even more awkwardly, the United States is three places lower still, at 43rd. Freedom of the press may not be doing quite as well as we imagine in either country.

Harry Eyres is the author of Horace and Me: Life Lessons from an Ancient Poet (2013)

This article first appeared in the 20 July 2017 issue of the New Statesman, The new world disorder