London: the Venice in our UK economy?

Venice was glorious this summer. Gloriously hot (cooled with a sea breeze) and gloriously expensive. Against a backdrop of and in contrast to competitively low retail pricing elsewhere in Italy (also comparing equivalent pricing in the UK), anything remotely luxurious and on sale in Venice enjoyed fabulously blue sky high pricing – from stationery to handbags and even a more lowly luxury coffee. The lure of foreign interest (in this case probably tourism) clearly pays off.

And so too is our very own London enjoying the impact of another trend in foreign interest – property investment tourism. Today’s Financial Times reports that upmarket development projects (luxury homes) have increased by two thirds and that rampant foreign demand (Europe and Asia) for safe investments away from turbulent eurozone economies is spurring an estimated £38 billion worth of development – 15,500 homes by 2021 in London’s most expensive neighbourhoods – even as housing development in other UK areas remains stagnant.

Will this be short-lived? Well apparently not – according to the FT, unlike previous booms, much of the money coming into the sector is from long term investors such as pension funds wanting a stable return.

London – and its property market – continues to enjoy world class status as far as investors are concerned, ahead of New York, Paris and Hong Kong.

Is this a good thing for the UK economy? Certainly short term money in will inevitably give a short term positive kick which then creates the obvious short term benefits – localised jobs, tax, secondary jobs and services. The overall ripple effect on general property pricing in the wider London area, or on other industries and services has yet to become clear. Very often, these super luxurious developments are not even marketed in the UK but first are offered in Singapore, China and other affluent international marketplaces.

Longer term, if this latest trend in luxury property development does in fact produce a stable and positive return, then London (and its property) will have shown that it can again become a magnet for the money of the world’s rich and successful.

But like all investments, property returns are not predictable and the past is certainly not a guide to future performance and there is always the risk that values can fall (again) and the cash investment in property cannot be realised quickly enough before making a loss.

For the time being though, as far as luxury property is concerned, London certainly appears to be the “new Venice”.

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