Oil price crash will pop UK’s property bubble

property bubble Every property bubble has a statistic that brings home how crazy things are.

For example, at the height of the Japanese property bubble in the 1980s, the land around the emperor’s palace in Tokyo was said to be worth more than the entire state of California.

Now we’ve seen the British equivalent. The value of London property is now higher than Brazil’s GDP, according to research by estate agents Savills.

The big questions now are – what will make the property bubble burst? And how far will prices fall?

Foreign money has kept the London property bubble inflated – but now it’s leaving.

If you’ve been watching the recent BBC shows about the super-rich, you’ll know that one of the big factors driving up London property prices has been foreign investment.

Up to 70% of the property sold in central London in the last few years has gone to non-UK residents. For London as a whole, the figure is around 20%. By far the biggest group of buyers is the Russians. They account for one in every five property sales worth £10m or more.

You can see the appeal. As well as the shopping, museums and schools, you have a very generous tax system for those who aren’t British citizens. The reliable rule of law and political stability is another big draw. If you were a Russian oligarch, would you rather keep your money at Putin’s mercy in Moscow? Or squirrel it away in London?

And it’s not just Russian buyers who are drawn by these benefits. The rolling eurozone crisis has sent a lot of money Britain’s way. You can bet that the ‘Arab Spring’ had a similar effect on funds from the Middle East.

As a result, lots of the wealth generated by $100 a barrel oil has gone into London property.

Source: http://moneyweek.com