READING EVENING POST ARTICLE
Posted by John Redwood, MP for Wokingham, at 16:18, Wed 13 December 2006:
The London property market is going into orbit. Each day brings new stories of ever higher prices for residential property and for commercial space in the prime locations. There are even signs of the excitement spilling over into some of the less prestigious areas, and beginning to affect properties below £1million as well as the many flats and houses in Kensington, Chelsea, Belgravia, Mayfair, Holland Park and the other smart areas that are already well into seven figures.
Why should this be happening, when elsewhere higher mortgage rates, higher taxes and rising unemployment signals belt tightening? The London economy has detached itself from the rest for two main reasons. The wider City, London’s financial districts, now spill out from the Square Mile, well into Docklands, north of the river, spread along the southern river bank by the Tower and reach deep into the West End where many hedge funds have set up. As the bonus season approaches, many well paid executives have access to large sums which they may well spend on upgrading their property, moving to a bigger and better residence. Meanwhile their employers are busily eating into the remaining surplus of floor space as they seek more office accommodation to meet their expanding business needs. Pension funds and other institutional investors have looked at how well property investment has performed over the last ten years. Many of them had all too little invested, and so many, now the market has risen so far, are busily trying to catch up by buying properties like there’s no tomorrow.
At the same time as this privileged and successful group put their money into property large numbers of foreign investors have decided they want to buy a flat in London, set up a London office for their business and maybe buy some extra property for their portfolio as well. There are many tales of people paying what seem to be very high prices without reading all the documents, signing on the dotted line immediately for fear of further competition for the property. Sealed bid auctions are common, and it is not unusual for more than ten buyers to be actively competing for a good commercial investment. We live in heady times.
The Thames Valley is not far down the road from all of this, but there is not as yet a great deal of spillover. There are no signs of hedge fund managers deciding Slough or Reading would make a better and cheaper alternative to W1, and not many people cashing in their 1200 square foot flat in the centre of London for more than a million pounds in order to buy a 2500 square foot executive house in Berkshire and pocket the change. Perhaps if the momentum continues there will be some who come our way looking for better value residences, but our economy is more rooted in the general malaise of over spending in the public sector combined with interest rate increases to contain the inflationary pressure.
The growing gap between the successful and the less successful is painful to watch. Unemployment is steadily mounting month by month. The pace of growth slows the further from London you go. The public sector has seen a large rise in wages and a big increase in spending. Now we face the time of reckoning, with cuts in some areas and pressures on budgets in all. Many experts think there could be another interest rate rise to come, putting a further squeeze on all those with mortgages.
The Stock market goes up and up. Some market professionals say that they think the Bank is overdoing the interest rate hikes and will have to cut rates at some point in 2007 when the slowdown is clearer. Others take comfort from the fact that company profits are still going up, and share prices are still good value when looked at in relation to profits. Let’s hope their optimism is right. It would not be good news if we had more of the same – a booming London, with the rest of the country looking on, mired in rising interest rates and rising unemployment. It all hinges on the Bank believing that inflation is under control. Until it does, business in the Thames Valley needs to be wary, as we can only take so much on the interest rate front before activity is damaged badly.
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