As it draws closer to the UK's elections, foreign exchange markets have displayed more volatility than seen since the US had its 'fiscal cliff' moment in 2013. Currency markets are always first to react to world events, which is why more and more investors are seeking the comfort of less erratic markets like real estate.
After the last UK election in 2010, there was a severe market reaction to the hung parliament, with close of trading on results day looking like this:
- FTSE 100: down 2.6%
- FTSE 250: down 4.1%
- Sterling: closed down just under 3 cents against the dollar at $1.4682
- Sterling: closed down more than 1p against the euro at 86.17p.
The result of tomorrow's general election has proven almost impossible to call. The climate of wild media speculation, dramatic campaign speeches and baby-kissing doesn't seem to be going very far towards encouraging the British electorate to turn up at the polling stations at all. 2010's hung parliament was a result of increasing apathy concerning the democratic process in the UK. This time around, the turnout is not predicted to be much better and certainly no way near the level Scotland saw for their independence referendum last year.
How the Election Outcome will Impact London
Apart from financial markets, the over-inflated property bubble in London looks set to burst very soon and the elections could well be the straw to break the camel's back.
There are more than 7 political parties standing for government this time which is almost certain to dilute voters' choices. Each party is attempting to stake a claim on the electorate, schmoozing the public with the promise of popular policies should they be the ones claiming victory.
Housing affordability and the shortage of social housing for families are probably the main concerns of most of the voting public in Britain. In London, this situation has been intensified because of the degree of foreign investment in the capital's premier commercial and residential property. Public opinion rides very high against wealthy investors being able to retain anonymity in London's property market and hiding behind offshore jurisdictions to protect their identity.
No matter who wins the general election, measures to increase transparency in property transactions are set to be very high on the agenda.
The fact that London is home to more billionaires than any other city in the world is not something that sits well with the British people. New development in the capital has been restricted to building supply for the luxury market, appealing to the demand source with the most money.
British Public Expect New Government to Address Transparency Issues
The fact that London is becoming known as the money laundering centre of the world is not going to help the new government and so it's an issue of major importance to deal with.
Financial analysts are predicting a large-scale withdrawal from London's property market as the worlds wealthiest seek to preserve their anonymity. Since 2004, more than £180bn-worth of real estate in England and Wales has been under criminal investigation. When the new government steps into power and turns up the heat, there could be a veritable exodus of foreign money from the capital's property markets.
And of course, when that happens the bubble is more likely to explode than slowly deflate!
Although real estate investment is never likely to see the volatility of foreign exchange markets, it still matters where you buy your property. When London's prices first started escalating, foreign investment was considered a good support to growth. However, when the buying continued long after prices had become unaffordable and margins next to invisible, another more sinister agenda became apparent.
Irrespective of tomorrow's result, London's property market is on a very short fuse. Property investors are much better-served by the UK's regional business centres such as Manchester, Halifax or Leeds, where the margins are much more promising. There is already a reticence among investors to invest in London, fearing a huge correction in property prices is imminent that will leave them saddled with over-valued real estate for the next decade.
- Wednesday 06 May 2015