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Lifestyle | 30 May 17

A world swamped with cash: London property market analysis by Jeremy McGivern

A world swamped with cash: London property market analysis by Jeremy McGivern

Jeremy McGivern is the founder and Managing Director of Mercury Homesearch, a renowned property consultancy based in London. With 16 years of experience, Jeremy is widely acknowledged as a leading expert in acquiring prestigious central London homes. Here, he offers his insight on what will happen to London property prices.

In 2010 the world’s assets were worth $600trillion, according to Bain & Co.

In their 2012 report, “A World Awash With Money”, Bain & Co. estimated this will have risen to $900trillion by 2020, in what they describe as a “capital superabundance” which will drive asset prices higher for longer while suppressing yields.

Five years later they seem to be spot on with their analysis. Asset prices have kept climbing while yields have remained suppressed—and this is in the face of what is portrayed as cataclysmic news, e.g. the Brexit vote and Trump becoming president.

Cast your mind back to the start of last year: the FTSE hit 5,707 in early February amongst market jitters. If you had asked anyone then where it would be following Brexit and Trump, the consensus would have said somewhere well below 5,000. At the time of writing, the FTSE is currently at all-time highs near 7,500.

Yet the consensus and press opinion is spewing rank pessimism; this is founded on political concerns, but in reality there is more money in the world than ever before. The Harvard Business Review reported on Bain’s work in an article in March this year which showed that:

 “global capital balances more than doubled between 1990 and 2010 — from $220 trillion (about 6.5 times global GDP) to more than $600 trillion (9.5 times global GDP). And capital continues to expand. Our models suggest that by 2025 global financial capital could easily surpass a quadrillion dollars, more than 10 times global GDP.”

So the question you have to ask yourself is what will happen to London property prices in a world where there is already a “superabundance of capital”, which is set to balloon further yet?

And remember, right now huge sums are sitting idly on the sidelines because the consensus is pessimistic. We are nowhere near the irrational exuberance and idiotic speculation that we witnessed in 2006/2007.

In other words, asset prices will surge once this money is deployed, and that isn’t even taking into account the fact that the banks are still heavily restricted on their lending capabilities. In 2009/2010 there was “blood on the streets” in financial terms and that was the best time to buy.

Right now, the blood has been washed away, but people are still nervous, so it is still a very good time to be buying a property. It is rather like the 1990s — 1993 was the nadir and by 1998 everyone was predicting a crash because prices had surpassed the previous highs by some distance.

The consensus in 1998 was pessimistic on the economy, house prices and global troubles, e.g. the Russian bond default, the collapse of Long Term Capital Management and the collapse of the Asian Tiger economies. Yet 1998 was still an excellent year to have bought the property – granted not as good as 1993, but by no means the blunder that people at the time were saying it would be.

So, don’t follow the herd now and delay. There is a giant wave of money that is being held back by a dam of political uncertainty. The money won’t disappear and is in fact growing at a stunning rate, but the uncertainty will dissipate and when it does that money will be deployed. You want to be ahead of that wave.

Of course, that doesn’t mean just buy any property. You need to acquire a “best in breed” property that will outperform the market. These will vary from area to area and price range to price range.

Enness are able to arrange finance for high net worth clients acquiring property both in the UK and internationally.

Written by Islay Robinson

Islay Robinson