The Super-Rich and the new Global Currency
New global currency for the super-rich
Millionaires row: the new One Hyde Park development in Knightsbridge
14 March 2012
London’s best properties have become a “global reserve currency” for the foreign super-rich, a new report argues.
Wealthy investors looking for a safe haven and buy-to-let developers are pouring billions of pounds into the capital’s property market, forcing prices up for ordinary Londoners looking for a home.
Overseas buyers are also benefiting from generous tax breaks, prompting calls for a crackdown in George Osborne’s Budget next week.
Research by the Left-leaning IPPR think-tank has found that foreign buyers spent £5.2 billion on central London properties last year, up from £3.7 billion in 2010. The massive figure equates to almost a quarter of all money spent in 14 central London boroughs, or around 13 per cent of the entire London market.
The report divides buyers into three categories: Europeans and Americans buying homes to live in or as investments; super-rich buyers from countries such as Russia, the Gulf states and the Far East looking for a form of “economic security”; and investors buying new-build properties to rent out.
It argues property in the capital has become increasingly attractive thanks to a weak pound and uncertainty elsewhere in the world, such as the Arab Spring and the eurozone debt crisis.
But it also highlights Britain’s “highly favourable” tax regime, with buyers able to use loopholes to avoid stamp duty, no capital gains tax for offshore trusts and low council tax.
Proposing a new “holding tax” of between one and two per cent for overseas buyers of property worth more than £2 million, it says: “These investors are exploiting the high degree of economic, legal and political security investing in London brings.
“From the UK’s perspective they appear to be hoarding an asset that is not productive, has few positive spill-over effects in the wider economy and significant disadvantages in higher house prices and rents for the UK’s economic base.”
Mr Osborne is coming under pressure to close a loophole which allows properties to be channelled through companies to lower stamp duty rates or avoid it entirely. Boris Johnson has condemned this as an “utter scandal” and said ending it could raise £1 billion.
IPPR director Nick Pearce says clamping down on foreign buyers is “long overdue”, adding: “Foreign purchases of London properties have reached such proportions that the capital’s prime properties have become a kind of global reserve currency for the wealthy elite of capital-rich countries.”