Thursday, 24 October 2013

London and Spain: the view from the top ... and the bottom

Two housing themes, with an international flavour, are increasingly exercising the print media and Twittersphere. The first is the gathering frenzy of what to do (or not do) about the supposed legions of foreigners pushing up the price of London homes. The other - definitely at the other end of the spectrum - is the possibility that the bombed out Spanish property market may finally be emerging from the dead.

The fact that, to a great extent, London house prices are being bid up by foreign buyers is as much an open secret as what Chancellor Angela Merkel says on her mobile phone, so I won't dwell on it. It's what to do about this that has raised debate to fever pitch, especially over the past few days. Windfall taxes for foreign buyers are back on the agenda (a convenient moment, when senior politicians are mooting it for "greedy" energy groups").

A lovely New York Times piece by Michael Goldfarb, doing the rounds today, elegantly illustrates the problem: London property's status as a "global reserve currency" is making the capital a "no-go area for increasing numbers of the middle classes". Building magazine's Joey Gardiner has summarised succinctly the conflicting arguments of what might be done about it. These range from the imposition of taxes on foreign purchases, especially those that remain empty (suggested by some Tories, among others), to the wackier option of outright bans (from Simon Hughes of the LibDems). In the feature developers argue that this may damage the market for normal punters as overseas investors "pump prime" the early stages of developments. (A bit of a specious argument since, in many major London sites, foreigners or bonus-heavy bankers, are not just pump priming but buying the entire filling station, as it were).

For what it's worth, my own back-of-a-fag-pack policy is a levy - let's call it 5% - for all foreign purchases where the owner is not using it as a principal residence (ie not an occasional bolt-hole). The revenue raised would be religiously ploughed back into lowering the rates, or raising the thresholds, of middle range Stamp Duty bands (lower price ranges are already getting lots of government help - at least until it all inevitably goes pear-shaped - through Help to Buy and other government wheezes).

The idea of anything remotely sounding like protectionism personally sticks in the craw, but the current situation is so distortionary that one could envisage civil unrest ... and a metropolitan re-rehash of those old "come home to a real fire" jokes ("buy a Welsh holiday cottage").

Some Asian cities are already imposing such taxes on foreign "speculators" and, by hypothecating it with Stamp Duty cuts, you would be off-setting one tax to reduce an even more iniquitous one, which is more than anything gridlocking the London mid-market. Whatever proposals circulate, expect the general subject to become the latest political hot potato.

Talking about patatas bravas ... there have been a few newspaper headlines in recent days about wily - or possibly fool-hardy - investors dipping back into Spanish property. The battered country's economy shuddered back into life (if you can believe the numbers) with a 0.1% rise in GDP in the third quarter (don't laugh, it's the first time in nine quarters the figure has not had a minus sign in front of it). Sareb - the state run "bad bank" drew 30 offers, including from US private equity groups, for a €300m batch of non-performing residential mortgages, according to today's FT. This follows on from news that Microsoft founder Bill Gates had squirrelled away 6% of construction and property group FCC, at €113m mere peanuts for one of the world's richest men.

It's maybe tempting fate a bit for headline writers to revive Y Viva Espana, but the early bird catches the worm or, as German private equity groups might say, is the first with the beach towel.  

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