23 October 2018
Surging home prices have prompted London Mayor Sadiq Khan to look into the impact of foreign buyers on the local housing market. Photo: AFP
Surging home prices have prompted London Mayor Sadiq Khan to look into the impact of foreign buyers on the local housing market. Photo: AFP

Why London mayor is probing foreign home buyers

London Mayor Sadiq Khan said he will carry out “the most thorough research” into foreign property ownership in the city amid skyrocketing home prices.

Much like many young people in Hong Kong, ordinary London workers find it hard to afford a home.

London housing prices have soared 110 percent over the last decade, according to the House Price Index released by the United Kingdom’s Land Registry.

In Hong Kong, the Centa-City Leading Index jumped 149 percent over the same period.

Because of the unaffordable home prices, many young people and workers in London have moved to smaller cities, where they have to commute two to three hours every day to get to their places of work.

Londoners blame foreign investors for pushing up housing prices.

By foreign investors, they used to refer to Middle East billionaires a decade ago, but now they mean wealthy Chinese.

The Guardian newspaper earlier revealed that more than 60 percent of a 50-storey block of 214 luxury apartments by the River Thames in Vauxhall had been bought by foreign buyers, some through companies in secretive offshore tax havens.

The weaker sterling pound has made the problem worse as UK housing became cheaper for foreign investors.

To help locals get on the property ladder, the new mayor has promised to build 80,000 new homes a year, of which at least 35 percent would be affordable to average workers.

He also said last week the city will launch the country’s most comprehensive inquiry into the impact of foreign investment on the local housing market, and explore how the government can take action to tackle the issue.

Canada’s British Columbia shares a similar experience of foreign buyers flooding into its property market.

It launched a study in June and found that nearly 15 percent of home owners in Richmond City are not Canadian citizens or permanent residents.

Of the 260 foreign buyers of Richmond homes in June alone, 234 are Chinese.

In August the government decided to levy a 15 percent extra tax on foreign home buyers.

In the UK, foreign buyers now need to pay up to 28 percent capital gain tax.

Khan’s inquiry may prompt the government to impose additional taxes on them.

However, that may not be enough to drive them away.

Just take a look at Hong Kong, where mainland customers account for 30 percent of the city’s luxury housing deals, even though, as non-locals, they need to pay an extra 15 percent stamp duty.

So what Khan is trying to do is perhaps find out more about how sensitive foreign buyers are to tax increment and identify the sweet spot where the government can raise tax to maximize its revenue to fund government housing projects while not hurting foreign buyers’ demand too much.

This article appeared in the Hong Kong Economic Journal on Oct. 4

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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