LONDON - Britain should ban foreigners from buying homes in order to halt soaring property prices, which are locking "millions" of citizens out of the domestic housing market, a London think-tank said.
In a report released on Monday, Civitas - a centre-right group dedicated to the promotion of a liberal economy and traditional social values - criticised the British government's "default setting" to do nothing "despite siren warnings of another housing bubble, rents at record highs and first-time buyers increasingly priced out of the market".
The report will sting the British government partly because Civitas has always been regarded as supportive of the ruling Conservatives. The organisation, which runs schools, evening courses and other social activities nationwide, is also influential enough to affect the tenor of the political debate in the run-up to the general elections, which must be held in a year's time.
For any foreign investor, the British property market holds clear attractions. The country has no restrictions on who can purchase real estate, and a long history of respecting property rights.
The Civitas report highlighted just how dominant foreign investors have become in Britain's housing market. The organisation said "only 27 per cent" of newly built homes in central London went to British buyers last year; the rest went to foreigners, with "more than half sold to buyers from Singapore, Hong Kong, China, Malaysia and Russia".Its premium housing market has generated an average capital return of about 25 per cent yearly, for a decade. Given how there are no capital restrictions - property can be sold and money taken out of the country at a moment's notice - the benefits of investing in British real estate become overwhelming.
And while the British property market was previously "an investment vehicle by the global super- rich", it is increasingly dominated by "the simply well-to-do", said Civitas boss David Green. Even averagely priced British homes, Mr Green said, no longer serve as human shelters but as "financial shelters" for foreigners.
This, Civitas said, distorts Britain's housing market at three levels. First, most of the construction is now geared towards foreign buyers. Thirty-seven luxury residential blocks of more than 10 storeys high are currently being built along the River Thames in the centre of London, reported the local trade newspaper Estates Gazette, all aimed at foreigners.
The frothy market also pushes property prices well beyond the reach of ordinary people. An average London flat costs £400,000 (S$836,000); only those who earn at least £70,000 a year would qualify for a mortgage of this size, an impossibility for newly married couples.
And because many of the foreign-owned flats are being kept empty, rental prices are also rising. At least half of a young British couple's disposable income now goes towards paying rent.
The solution advocated by Civitas is to set up a "non-resident housing investment agency", which will authorise foreigners to buy property only if they can show that their investment spurs developers into increasing the domestic housing stock, for example, by ploughing profits into further construction.
The scheme consciously copies the model in Australia, where a similar board already operates.
As the think-tank readily acknowledged in its report, "the lure of money" is unlikely to persuade the British government to adopt its proposed scheme. And for good reason, for both the ruling Conservatives and opposition Labour fear that if any restrictions are imposed, the housing market would fall in value, attracting the wrath of voters.
So, instead of confronting Civitas' proposals head-on, most British politicians are just talking past it. Chancellor of the Exchequer George Osborne has said his decisions to impose a capital gains tax on previously exempt foreign home owners, and to raise the stamp duty on properties worth more than £2 million to 7 per cent of the total value are examples of how his government is dealing with the problem.
Yet this achieves little. Differentials between currency exchanges provide foreign buyers enough profit to cover extra taxes.
Meanwhile, the opposition Labour party has launched a furious campaign against foreign home owners who leave their properties empty. Labour housing spokesman Emma Reynolds said "it is a scandal that overseas visitors are buying London homes as piggybanks with no intention of living in them". So, would Labour support restriction on foreigners, or an expansion of housing construction on green land in London? Well, not quite.
The reality is that although both government and opposition in Britain know that their country's housing crisis is acute, neither sees any electoral incentive in doing anything about it. Britain's home-owning middle class loves high property prices and votes for the party most likely to sustain them. And while those excluded from the housing ladder now number millions, many of them do not usually vote.
This story was first published in The Straits Times on Feb 5, 2014
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