London Real Estate – The New Gold?

At Princip.al, we regularly attend conferences and we discuss projects with a lot of real estate investors and developers.

One of the topics which never fail to come up is the London real estate market. Indeed, the prices for real estate in Mayfair, Chelsea, Knightsbridge and other sought after burroughs in London have been defying gravity for the last five years. The main culprits, as indicated by the market, are affluent foreign buyers – often from mainland China, Russia, the Middle-East and Latin America. There are some very particular reasons for this:
  • the UK has some very advantageous tax laws for the super wealthy.
  • London is the global center for finance.
  • London boasts some of the world’s best educations centers. Many very affluent families have children studying there.
  • the UK has a tradition of being very protective of home-owner’s rights.
What is not heard, is that the rental income of high-end property could justify these valuations.

Indeed, what is often heard is that many wealthy families and individuals consider London real estate as the last safe heaven for them should they be forced to leave their countries of origin or in case of extreme economic stress.
This is of course where the parallel with gold becomes interesting. Gold indeed is not bought for it’s yield qualities. It has strictly none. The only reason we still buy and sell gold is that it’s still considered as the last safe haven in time of economic stress. If there’s a war, you can take some gold bars out of your vault and start somewhere afresh. Admittedly, gold mines dig up new gold continuously, but the total gold quantity of the world is apparently no bigger than a couple of Olympic swimming pools.

And here’s where it is interesting. The super rich these days prefer not to have too much gold. Why have gold when you can go to your London residence and live there?

So, yes, in this sense, London real estate prices seem solid. As long as they’re a safe haven of stability in a world in constant flux.