Italians and Greeks are pouring millions of Euros into the London property market, which is standing out as one of the few safe-havens within Europe. On the first wave of the financial crisis, investors from Italy and Greece joined investors from across Europe and around the world in London to capitalise on the weak pound and bag some bargains.
Now, while the pound is still much weaker than it was before the crash, this is no longer the main driver of foreign demand in London. The pound has found a new level against the euro, and now Europeans investing in London are doing so to secure the value of their savings against the possibility of devaluing cash, especially given the unshakable possibility that the single currency could yet be dissolved.
"London is a place to put cash outside of the Eurozone, and certainly outside of the south European countries," said Liam Bailey, head of residential research at international property broker Knight Frank. "It's fair to say that is a real and live trend."
Chinese and Indian buyers, by far the biggest are also buying because they see London as a safe-haven, but it is a greater testimony coming from Greeks and Italians, because one can't ignore the fact that the UK has about as big a problem with debt and deficits as they do. However, the obvious difference is that London is not in the Eurozone, which, at the moment makes it immediately and massively safer for investment.
Surprising though it may be Greeks and Italians are buying up prime London properties in growing number, according to data from Knight Frank. Last year Greeks and Italians were responsible for 1.7% and 1.9% of upmarket property purchases in London respectively. This year both were responsible for 2.63% of purchases. Spaniards are also buying, this year they were behind 0.7% of purchases compared to 0.6% last year.
Another report by Knight Frank shows that a total of £7.8 billion worth of prime London properties were sold in the year to end September, and that Spaniards, Greeks and Italians accounted for £393.8 million of that, which is 5.1% collectively.
Practically anyone with any real wealth, particularly those with substantial cash reserves is feeling very nervous about the rapid devaluation of cash in most currencies as those not fighting debt balloons and deficits have roaring inflation, and some have both. Either way it is not a good time to hold a lot of cash. This first triggered the gold rush, and after gold prices soared prime property in prime locations became the next safe-haven.
Greeks have particular cause for concern. They are undoubtedly in the worst shape in Europe, despite their being under a bailout agreement with the ECB, they are practically bankrupt and the austerity measures they are forced to impose to beg for the next handout are becoming more and more severe, but nothing seems to make any difference. There is a real risk of Greece abandoning the Euro or vice versa, which would mean a massive shake up in the value of any wealthy Greek's assets.
Italians aren't in quite the same boat. Yes, they have high public debt, and their sovereign borrowing costs are getting dangerously high, but they have low consumer debt and a much better chance of surviving the crisis intact if they are able to start doing the right things to stimulate the economy. That said; if Italy does fall into the need of a bailout the EU's current fund just can't cover its marker. So, what would happen then? Would Italy be forced to leave the Euro? Again, this is a big risk for wealthy Italians holding cash.
Spain is in much the same boat as Italy, but its sheer economic size and power mean it is safe for a while yet. However, if Italy does fall over, then the worries will instantly become a lot more real for Spaniards. It is likely the closer Italy looks to needing a bailout the more London property purchases we will see involving Spaniards.
Then you have Portugal and Ireland, both of which have been reasonably quiet ever since they were forced to ask for emergency aid. However, they could yet have their apple carts rocked by any of the events above.
Italy is almost certainly too big for the EU or ECB to cover its debts without major outside assistance. Ireland and Portugal are receiving their assistance from the ECB and IMF, Italy or Spain going the way of the bailout could force the complete dissolution of the single European currency, which would likely mean no more ECB and more uncertainty for Portugal and Ireland. If Ireland and Portugal's wealthy haven't already started putting their money into safe assets then it will probably start soon.
The same goes for any country in the Eurozone. If the euro goes they will all be forced to go back to their old currency, and face the value of their cash reserves taking a real beating. It will be interesting to watch the numbers of buyers from Eurozone countries in safe-haven cities as fear about the safety of the Eurozone increases (and/or hopefully eventually decreases).
- Monday 16 January 2012