438: The whole world’s moving to London
It’s been a very good year for London and increasingly large numbers of the international super-rich are moving to London. There are many reasons for this which we will outline below, but first a few highlights in the last year.
Private sector employments has been very strong - the London economy is motoring nicely – GDP numbers are masked by the stagnant rest of the UK economy
Boris Johnson was re-elected – a sensible popular mayor who wants to improve infra-structure and stimulate business, private sector investment and employment
The Olympics start on Friday – a huge boost to the London and UK economy
The Tory/Lib-Dem Coalition has reduced public sector jobs creation and tried to stimulate private sector jobs growth – these policies seem to be working and are positively impacting London
The Royal celebrations in June made the British feel proud – culminating in an amazing concert outside Buckingham Palace that had something for everyone and bought the world to London, and London to the world
The murder rate has crashed to the lowest for 30 years – for a large cities it’s one of the lowest rates in the world and means it’s relatively safe walking the streets (almost all murders are people known to the criminal, often family or friends/enemies)
Booming population – the population has risen by 800,000 or 10% in the last 10 years, just as we predicted back in 2004 – if anything the population growth is accelerating. This is giving a big boost to jobs and GDP growth.
Wimbledon was a huge success – a British person in the men’s single final and another Brit winning the men’s doubles
Bradley Wiggins from Kilburn will hopefully win the Tour de France on Saturday – with another Brit Froome coming second fingers cross and Cavendish is the World Champion
One of the downsides about the vibrant and expanding population is the stress on the transport system. But anyone who has visited other large cities will see London’s system is probably the most diverse and comprehensive in the world, 8 million people all within a 12 mile radius of the city centre. There’s even room for some fantastic parks and golf courses. You can normally choose from the tube, train, taxi, cycle, walking, car – even river ferry. These are all safe as well in part because of video camera surveillance.
Anyone walking the streets of London will get a feeling of the “feel good factor” – loads of people looking fairly happy and busy – young, vibrant, buzzing. We don’t think this is anything to do with the Olympics either.
The only real recent negative has been the Libor crisis – which has undoubtedly tarnished the City’s reputation for financial services. These bankers keep being found to be dishonest – and it shows no signs of easing up for now. The problems go back many years.
Many of the above are transitory in nature. It’s best to take a look at the fundamentals of London – to determine just why it is so popular with the super-rich. Some of the positive things in London:
* It was interesting to hear David Camerons comment when Hollande was elected President of France – that he would roll out the red carpet for the French. What he was saying was, as the socialist government increases taxes to the aspired 72% rate for high earners – London would be delighted to accept these extremely well educated and wealthy French to boost the UK economy even further.
* London has the “non-dom” status for wealthy international citizens which means they can move their families and businesses to London and get excellent tax treatment – these people create massive numbers of jobs – each super-rich person probably about 100 on average all across London. From schools, nurseries, shops, restaurants, builders, plumbers, estate agents, taxi drivers, theatre workers, financial services, house cleaners – you name it – they require it. Anyone that turns their nose up at the super-rich will lose out because they are the people that create jobs and build businesses. They come to London to live and next thing – they are creating businesses out of London all over the world. It’s difficult to put numbers on these entrepreneurs – but we need as many as possible. We also need local people Damien Hirst and Tracy Emin – hugely successful artists – they build galleries, have massive studios and sell work internationally. They pull in hundreds of millions of pounds of investment into the UK. We need rock stars to live in London – sell music around the world. In our view, it’s about time we celebrated all their achievement rather than criticising them. Well done Damien Hirst for creating value, jobs and employment for families in the UK plus paying huge tax bills to pay for schools and hospitals. And pulling in all that money from the Far East and the USA to boost Sterling.
Just consider these other reasons in addition to the above – why people are moving to London and house prices continue to rise in London:
Greeks bailing out of Greece – shifting Greek Euros into Sterling before they exit
Spanish bailing out of Spain – after the property crash and run on the banks as rates and debt payments rise
Italy bailing out of Italy – as it looks likely Italy will go the way of Spain
French bailing out of France – after the new socialist government came to power – promising 72% tax for the wealthy, more debt, regulation and a bigger government and public spending – with attacks on business
Middle Eastern – investors and private wealthy families bailing out of unstable countries or hedging their bets by purchasing property in London
Iran – wealthy Iranians bailing out of an increasingly unstable country
China – wealthy Chinese buying London property because of the culture, shopping and lack of pollution for such a large city
Americans – seeing the writing on the wall for the US dollar as Obama looks likely to get re-elected – and the tax and regulatory net widens on all US citizen – bailing out before it gets bad
Being British - it’s sometimes hard to understand why people would want to come from abroad to live in London. Many of the things people complain about are actually world class. Examples are:
Docklands Light Railway
If you go to Africa and South America, you won’t find any city with such a well developed, safe and reliable transport system.
Excellent Food: Twenty years ago, people complained about the standard of restaurants in London. But now, some of the best restaurants in the world are in London – standards have been transformed – probably because there are so many foreign people working in catering – French chefs and Italian waiters – food from every enclave of the world is served in London.
Cultural Activities: Then there is the Theatre, Cinemas, Museums, Art Galleries, Exhibitions, Nightlife, Shops, Parks, tourist attractions. The list goes on. You could keep yourself busy in London seeing all these places for years. You can imagine if you are a Saudi woman living in a desert city how amazing all these places are to visit – all the shops, cafes, restaurants, theatre etc. There are so many attractions it would take years to see them all. The top attractions can be visited many times without ever getting bored. They are social gathering places for the well to do.
Tolerant-Respectful: One of the best things about London is the tolerance of all nationalities. Every nation in the world is represented in London – a massive mix of different cultures all accepted – an equal society. This attracts wealthy foreigners in huge numbers – all these things drive up the property prices in London. No one will ask where someone is from – it’s considered irrelevant. After all, almost half of London is from “broad”.
Access to Europe: With four large airports and the Eurostar, it’s fairly easy to visit other European countries – 300 million people within 1000 miles. Each country having a different culture and history.
English: London is an English speaking city – this is very important for super-rich families that likely have English as their second language.
History: London is full of history, art and culture. This is often forgotten by the locals – but you only have to visit Los Angeles, Cape Town or Doha to realise how incredible boring the history is – there is practically non. Britain once has Colonies and an Empire and the history albeit chequered is fascinating to international people.
Cool in Summer: Funny the Londoners complain about the weather, but many people from the Middle East come to London for the cool weather in the summer – escape the intense heat and get out of the sun! Who cares anyway if you take taxis and spend most of the time inside shopping, home, school, cafes, college etc. When you haven’t seen rain for years – and its 45 deg C, it’s great to walk in the park without sweating or getting burnt, when a shower is a novelty.
Debt Laden: One of the key issues for the UK is its massive debt that is unsustainable in the long run. The Tory Coalition progress on this, albeit rather slowly and the deficit remains disturbing. But when you compare the UK with other countries like Spain, France, Japan and the USA – who do not have credible spending reduction plans, it actually starts looking like a safe haven. How long this will last is a key question, but at least this government seems to be trying to tackle the issue seriously.
Non Dom Tax: The tax regime for non domiciled wealth foreigners is extremely attractive. Most wealthy people around the world know this – and if they want to benefit from outstanding cultural, educational and tourist aspects in a safe country, then London is normally preferred over rather boring places like Geneva, Monaco and Luxemburg. Yes, these cities are clean and wealthy, but they don’t have the same attractions as London.
Law: British law protects property investors – legal title to a property is something one can rely on. Confiscation of property by the government is unheard of. There is no discrimination against international people wanting to buy property – everyone is welcome (as long as the cash is not laundered that is).
Investing Centre: This is one of the reasons why London’s financial district has become so successful in the last 30 years – because once these wealthy people settle in London, they use the City to invest their millions or billions. They know investments made in London have good legal and regulatory regime – and corruption (or being blatantly ripped-off – is uncommon.
The areas the super-rich tend to purchase in are:
St Johns Wood
Other areas – normally lower cost but also popular are:
Population Boom: The world population is 7 billion. Buy 2050 it will be 9 billion. The UK’s population is growing rapidly. In 1960 it was 50 million. It’s now 62.5 million. By 2050 it will be 75 million. As more global wealth is created and the rich get richer (as they normally do) – there will be a large increase in the global super-rich with no additional West London properties being built. The demand will rise as the UK is considered a safe haven for families – and supply will be static. Hence property prices should continue to rise and be supported in the most select areas of London. We don’t think West London property prices are a bubble. Rather we think currencies are being devalued and inflation is raging – property is an excellent hedge against inflation for cash rich super wealthy people. With London being one of the safest and most attractive places to buy a property.
Continued Growth and Lack of Building: In the next ten years, London will attract another 800,000 people. That would need at least 400,000 new properties. But can anyone see 400,000 properties being built? No way. The whole of the UK only has a net 80,000 properties added each year – with a population eight times that of London. New build property – particularly houses – will be in short supply for many years to come, particularly these near central London in select safe areas.
We hope this guidance has been helpful. We also hope we are wrong. No-one likes to see a crash. Just make sure you reduce your exposure to it as much as you reasonably can. We just cannot see things rising much further – and we really think things are due for a big drop. If you have any comments or questions, please contact us on email@example.com