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302: Why the Rich Will Always Find London Attractive – Supporting Prices


234: London Olympic Games - impact on London team


Impact of Financial Crisis - What Impact? It would be easy to think that in a time of financial and economic crisis (bordering on meltdown) that property prices in Europe's most important and highly exposed financial centre would go ninto free-fall. If you review our predictions, you may notice that never thought this would happen. There are many explanations for this, which are worth sharing – to give the property investor a perspective to try and help shape investment decisions. Some of these reasons are not popular – though they are we believe an accurate reflection on the economic reality.


Analysis:  They always say the Banks are the last people to suffer economic hardship, even if they are in the middle of the cause of it. This time around, what seems to have happened is:


50% tax hikeTax: Even when the government raised taxes on bonuses to 50% this year, the banks have stepped in to pay their employees taxes! If the government try any harder – the banks will up-route and leave the UK – then they will get no taxes at all. Economic studies have found in the vast majority of cases that when taxes go up, overall tax receipts eventually come down. The rich will always find ways to duck and weave – and if they cannot do enough of this to avoid the tax – they will then get brutal and simply leave!


One can see in this situation where heavy bank losses have been funded by taxpayers money – to be repaid of many year – there has not been much hardship in London. The recession has been hard to detect. As normal, the worst affected areas are the North, Wales and Midlands where manufacturing jobs have been lost and public sector cuts and tax rises are starting to bite.


Negtaive Impacts Minimal in London: There are many other reasons why recessionary effects and cafe-Menproperty price reductions have been so  minimal in London:


Lucky Londoners!  We could go on. People often complain about the tube and rail in London, but if you ever go to Los Angeles, Cape Town or New York, you will understand how brilliant the combination of tube, rail, cabs, walking and cycling is in London. Anywhere central is a pleasure to get around, all within a short distance – masses of theatres, pubs, cafes, restaurants, tourist attractions – then the West End, City and Docklands financial centres for investors and beautiful villagey places for the wealthy home-owners. We don't see any particular reason why this would change in the next ten years.


Borrowing:  Another interesting fundamental is that many of the more expensive properties in London are purchased with cash proceeds (equity) rather than borrowing (debt). This means that prices are less susceptible to declines if interest rates increase significantly. We believe Moneyinterest rates will start rising in Q2 2010 (possibly as early as Feb 2010) - we think the lower percentage levels of borrowing in the region will see prices in London fair better than the UK average in the next five years at least - particularly when considering the region's lower exposure to public sector and manufacturing jobs.   


Brightest Talent Leads to Bright Future: Add to this the massive influx of some of the brightest graduates in the world to London – and the knowledge, technology, financial services and media businesses will see the benefits of this talent  in future years. As long as high taxes do not drive these people away from the UK – the Tories could well put a stop to this in the first few years after an election.


oil-rigPeak Oil Hedge: Another consideration is that London is a hedge against "Peak Oil". If there is another massive oil price spike, the commodities traders and oil companies in London/SE England will benefit and proceeds would be distributed in the region more than any other UK area. The good electric systems in London are also beneficial – people can still get to work using electric forms of transport. If you live within say 5 miles of the City centre, you can also cycle if you are reasonably fit or enthusiastic. And they salt most of the roads!


Good Mix: Overall, with London's liberal attitudes, relatively safe environment, culture, interest, financial service acumen and history, it's little wander wealthy foreigners and local UK citizens choose to live, work and holiday in London. We see no reason to believe this will change. We hope this Special Report has been objective for you and of interest to property investment. If you have any comments or question, please contact us on 


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