London Will Be a Real Estate Investment Magnet Despite Brexit

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( — December 25, 2016) — Wealthy investors seeking out investment properties in global cities like New York and London may have been a prime example of globalization and free trade. But political events over the past year like Britain’s exit from the EU and Donald Trump’s surprising victory have proven that the tide is turning against globalization. This makes the future of transational investments in prime real estate uncertain.

Transnational wealth is money created in one nation and heavily invested in another. Usually money flows from emerging and frontier markets to places seen as ‘secure’. Singapore, London, and New York were on the top of the list of secure investment destinations. Foreign real estate investments grew by 33 per cent in 2015, reaching an estimated $62.7 billion that year. Back in 2012, nearly half the investment in New York and close to 85 per cent of investment in London’s real estate came from foreign buyers. If you were part of the global elite, it seemed London was your most likely safe deposit box. If you lived in London, you could sell your house fast and lock in an exceptional price.

But then Brexit happened…

Brexit, however, has changed that. Property deals in Central London have halved since Britain decided to leave the European block and raise taxes on real estate investments. Prices are expected to plunge further as the country works its way through an arduous exit process over the next year. There’s no doubt the property market is in a slump right now. But whether the global elite will shun British property is still debatable.

But is it all bad?

The Knight Frank Global Wealth Attitudes Survey 2016 found that nearly half of all asset managers and bankers thought prime real estate would continue to be popular with wealthy investors over the next decade. The rich are simply getting richer at an extraordinary pace and don’t have enough opportunities to invest in. Regardless of the political climate in the United States and the UK, plutocrats from non-OECD countries will still need a place to safely store wealth and protect it from inflation, economic turmoil, and instability at home.

Demand for prime real estate is cyclical, but has been consistently growing over the past century. Elites from across the globe have looked to London and New York after every successive crisis – from the oil crisis in the late 70’s to the collapse of the Soviet Bloc in the early 90’s. Investment money has been flowing to London for its unique culture, financial connectivity, straightforward regulations, and ease of access. A little political instability could temporarily affect prices, but for long-term buyers this is nothing more than an excellent opportunity.

In other words, the global housing market is cyclical and there’s a lot of attractive factors that could help London preserve its crown as the best destination for foreign money chasing prime property.