Monday, 20 March 2017

The myth of the cash prime residential buyer



There is an assumption that people buying for £1-5m are cash buyers. Surely some are and over £5m presumably the majority are. However I thought I would share this. 

A couple of years ago while Osborne and Carney were busy pumping up the housing market to try and offset austerity with a 'wealth effect', we had an internal education event for private bank colleagues. In the reception after I chatted to someone on the Asian offshore desk (ie South Asian nationals banked offshore in London). I asked her if her desk's clients bought many of our products (HF, RE, PE), she said 'no'. So I asked what business they were doing, she said 'its only residential property'. Turns out the clients were buying apartments to let in prime London with maximum LTV. I then suspected that they were borrowing the 'deposit' over in Asia and bring it here to leverage up the capital gain trade to the max. To print enough business to be a client I think they would have to do several of these deals to meet the minimum criteria. 

Since then Sterling has slumped, the BoE is likely to start following the Fed soon and now the price of the properties in question seems to be falling, with many having been bought at the equivalent of a 1-2% gross rental yield.

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