Why is London Increasingly Seeing Empty Properties?
Hello Aluxers, it’s a pleasure to have you with us today as we’re taking a deeper look at a fascinating phenomenon that’s currently taking place in London and soon we might see that happen more and more throughout the world.
Here’s a list of what we will be discussing in the article:
- Why is This Happening?
- Who’s Buying?
- Billionaire’s Row
- Why the Rich don’t Live in London?
- The Future
Everywhere you look in the developed world you can see housing problems. Rent prices have gone up and new buyers simply can’t afford to purchase a new home. But there’s another side of the problem that not many are aware of, because it has to do with rich and how they handle their money.
Currently there are over 200,000 empty homes in England and over 10% of these you’ll find in London, which are in perfect condition, yet nobody lives in them. Brand new high-rise apartment complexes are being build, bought and left empty, pushing the average person towards the periphery of the city.
If reading is not your best talent or if you want some visuals with the bits and bytes of information, here’s all of the content packed into a decent video:
With that out of the way, let’s grab our magnifying glasses and investigate, why exactly London’s seeing these increasing empty mansions? You might be asking yourself, why would anyone buy a really expensive home and not live in it? It’s one of the ways the rich are getting richer. Let’s have a look!
Why is this happening
To put it simply: Rich individuals are purchasing property in London and locking its doors because the increase in property prices within the city outperforms that of investment funds or the interest rate offered by banks, making it a very smart investment.
The closer you are to the city center the higher the return you’ll see in your investment. These are people with deep pockets that choose to protect their investments and have their wealth flourish. In the last decade alone, prime real-estate in london has almost doubled in value. (London as a whole: 68% growth 2008-2018)
It’s mostly crazy rich asians who do the buying! Ever since the financial collapse, the chinese elites and the rich arabs have been on an aggressive shopping spree in london. These people want to diversify their portfolio, park their cash oversees and enjoy the high returns.
With the rise of China’s super wealthy class, we’ve seen an influx of money pouring into commercial real estate.
Let’s take the most recent luxury development project in London: One Hyde Park. A luxury complex where just a few years ago, a single luxury penthouse sold for 240 million dollars.
Just to rent a 2 bedroom apartment here will cost you around 5500 pounds per week, that’s 30,000 dollars per month. That’s 360,000 dollars per year generated from rent from a single 2 bedroom apartment.
Interesting to know is that 75% of the apartment owners list their flats as secondary homes. The price for a 3 bedroom flat in the city center starts at 10 million dollars and people are buying. The rise of direct-booking platforms like airbnb has proven to be quite lucrative for those who weren’t even renting out their properties, driving profits even further.
Taking into account the rise in property value and the high rents practiced within the city, foreign investors look at it simply as a capital gain opportunity.
But this is not something new. One of the most fascinating stories to tell is that of Billionaire’s row, where rich people bought mansions, left them to rot and still made millions every years.
Located in North London on Bishop’s Avenue there’s close to half a billion dollars worth of prime real-estate.
The street is filled with 30 to 50 million dollar mansions that are left in ruin. Most of them were purchased in the early 90s by the royal families in the middle east. Wealthy politicians trying to escape their countries going through conflicts found themselves the right property here, but never got to live in them. The Saudi family owns multiple properties here.
Mansion after mansion, found it different states of decay are slowly being taken over by nature.
If you ever feel like taking a tour, there are plenty of youtube channel that trespass into these properties showcasing just how bad their condition is.
Yet, even with the buildings on the brink of collapse, the properties still increased so much in value that it made for a great investment.
In the 90s, you could purchase a mansion here for 1.2 million pounds that’s around 1.5 million dollars. The same property today would fetch at least 10 million.
Why the Rich don’t Live in London?
Believe it or not, it’s simply too expensive to live in london, especially if you’re wealthy. It’s much smarter to own property, list it as a secondary home, rent it out or simply wait for it to appreciate in value while you live your days in a tax haven like Monaco.
UK’s richest person, Sir Jim Ratcliffe, worth ballpark of 45 billion dollars, just relocated to Monaco in order to save 7 Billion dollars in tax. Wouldn’t you do the same?
He’s not the first one to do so. A third of British billionaires have reportedly moved to countries like Monaco over the past decade in order to avoid paying taxes. According to an investigation by The Times, 28 out of 93 British billionaires, or 30%, have moved or are in the process of relocating.
By keeping your properties as secondary homes and relocating to more welcoming environments, british billionaires can save the 38.1% in UK income tax on dividends and 20% in capital gains tax on the sale of shares.
This has been a double edged sword for the government, that proved quite difficult to solve. On one hand you would want to increase taxes on these properties, but that only drives the natives away.
Everywhere you look new development projects are underway but they all fall in the cycle, where the majority of residences have already been purchased before completion by foreign money. With space being so scarce in the middle of metropolitan cities, there’s no way to escape this trap.
Because of it, property prices are skyrocketing and we’re slowly shifting from a owners market to a renters one. In the near future it will simply become impossible for middle class citizens to afford to live in the city.
Brexit has yet to be finalized and it already had a dramatic impact on the purchase power of the British pound, for now property prices are slowly dropping as everybody is waiting to see what’s going to happen.
London remains one of the most sophisticated and sought after financial hubs of the world, but despite its former glory, there are now more alternatives for similar investments throughout the world as we see more and more people moving into the middle class.
This universally drives real-estate prices up which has always been incredibly lucrative for the rich. Ironically, this backfires on the poor and middle class who are in turn being locked out of prime residential space. The rich are getting richer, while everybody else is forced to move outside the city.