In mainland China, authorities have put restrictions on property speculators to dampen the market, while in Hong Kong prices have risen by 70% in less than two years. But the 25% depreciation of sterling over the last two years makes the London property market a real draw for property investors from China. Sky News reports that one in three of buyers of new properties in London come from China and Hong Kong, mainly in the £400,000 - £1mn bracket, either seeking accommodation for their children studying in London or simply an investment. If - or when - the sterling/dollar exchange rate recovers, their return will be enhanced by the increased return they could get when they take their money out of the UK market again.
The London market may offer better value for money than Beijing, Shanghai or Hong Kong - but the knock-on effect of the market mechanism could be to raise prices in our capital to a rate that is increasingly beyond the reach of UK residents. The Housing Association has forecast that many young Londoners will have to wait until they are in their 50s to be able to afford a deposit. Assistant Director, Paul Rees said: “In effect we simply don’t have enough homes to go around. As a result of that, 800,000 people are on a waiting list for an affordable home and the average house price in London is thirteen times the average salary.”
So this report links to aspects of simple analysis of the price mechanism, impacts of exchange rates and the balance of payments, inequality between regions in the UK, the desirability of inward investment to the property market (good for builders, estate agents, and furniture sellers; bad for local residents who are priced out of the market and have to move further away from their work place thus incurring longer and more expensive journeys to work….etc) - and also tells us something about the extraordinary income gap in China, where the World Bank estimated in 2009 that about 15 million of the rural population were still existing in poverty, and the National Bureau of Statistics measured urban per capita net income at 17,175 yuan ($2,525) - and yet enough people can afford to educate their children in the UK and to invest in property in London to shift the demand curve for the housing market.
Have you seen the tutor2u YouTube channel? Subscribe now and never miss a revision video!
Add these revision guides and worked answers to your essential revision resources for AS & A2 Economics exams this summer. Our revision guides are brand new and bring your tired old...