London’s newest, and Europe’s tallest, skyscraper will open on Thursday followed by a fanfare of lasers and fireworks. The £2bn Shard, all 1,016 feet of it, will be illuminated to show off the Qataris’ latest trophy in the capital. Already in their shopping basket are Canary Wharf, Harrods and One Hyde Park, the world’s most expensive block of flats.
As financial invasions go, it’s not subtle. Qatar’s investment fund, overseen by the country’s Sandhurst-educated ruler, Sheikh Hamad bin Khalifa al-Thani, also owns a big slice of supermarket Sainsbury’s, a large slice of the London Stock Exchange, and the Olympic Village – once the athletes have departed.
The Qataris are not the only cash-rich investors with an interest in the UK’s assets. The London Metal Exchange is the subject of a £1.4bn bid from the Hong Kong Stock Exchange. It also qualifies as a trophy asset because it handles deals covering 80% of global trade in industrial metals.
But the focus of most overseas investors – from the Chinese to the oil-rich states of Abu Dhabi, Saudi Arabia and Russia – is property.
Commercial buildings in the City and upmarket properties in plush parts of the capital are the target. It is something that has been going on for 15 years, according to a report by economics consultancy Fathom Consulting.
It says the stock of prime housing in London’s most desirable areas has outperformed Greater London by 30%, and the UK as a whole by 34%, over the past three years.
“This has led to a growing belief that prime central London is special and entirely separate from the rest of the UK property market. That it’s in a class of its own,” the report says.
A separate report by Development Securities found that London’s office buildings attract more foreign investment than any other city, even outranking New York. Between 2007 and 2011 sales were €72bn compared with €43bn in Paris. It concluded that at the end of 2011 52% of the City of London’s office space was foreign-owned.
For the accountants, lawyers and bankers buzzing around the London property market like honey bees, the UK’s recently acquired safe-haven status is a mark of success. Greek millionaires buying homes in Hampstead and the Spanish property tycoons hiding their gains in Richmond’s quiet streets are welcome to join the eastern European and Russian billionaires.
Anyone who balks at the hot money flows is a little Englander and they have never had much influence at the top of British society. For more than 400 years, Britain’s merchant class has preached open free market economics, especially when it comes to the buying and selling of assets. It would be ridiculous to shut the door on foreign investment of any kind when the legacy of empire means we own huge amounts of foreign assets and continue to buy abroad in roughly the same proportions as foreigners buy here.
However, an obsession with property as an investment is eating away at the British economy. Every 18 years or so we suffer a property bubble and crash. Each time the recession discourages investment in manufacturing and services, puts millions of people out of work and forces the government to borrow more. The booms are not much better. They raise the cost of housing and eat into living standards (unless consumers make ends meet by borrowing against the value of their home).
If you look at it this way, the banking crash was a symptom of the exuberance around property investment, not the other way around.
And there is another serious point, one that the free marketeers might take on board. The Chinese, Russians and petro-dollar economies of the Middle East refuse to reciprocate. Increasingly, they put up barriers to foreign buyers that the UK refuses to contemplate. The purchase of the London Metal Exchange is a case in point: no one’s going to be allowed to buy the Hong Kong Stock Exchange any time soon.
Britain’s small businesses are normally at the front of the queue in demanding more action from the Bank of England to cushion the blow of the economic downturn.
So it is significant that with the Bank’s monetary policy committee highly likely to vote for a renewed bout of quantitative easing on Thursday – four out of nine members backed it last month – the British Chambers of Commerce are not cheering them on as they crank up the printing presses, but urging them to hold fire.
David Kern, the BCC’s veteran chief economist, is anxious that rather than releasing more resources into the corners of the economy that are starved of cash, a decision to increase the £325bn the Bank has already created through QE could simply push up inflation.
Inflation has now mercifully started to decline, slipping to 2.8% in May from 3% in April; but falling disposable incomes have been a key reason for the economy’s sickly performance over the past 12 months. Consumers have been forced to spend more of their pay packets on essentials like fuel and food; with their wages stagnating, they’ve been disinclined to hit the shops.
Kern’s argument is that if the banks and investors who sell government bonds to the Bank under the QE programme just use the money to speculate on commodities, for example, instead of lending it to ordinary punters, it could do more harm than good.
As Kern puts it: “Adding to QE is not a risk-free policy, as it will limit the decline in inflation at a time when it is important for it to fall. This will be the most important single factor likely to underpin real incomes and boost demand in the UK economy over the next year. At the moment, adding to QE may prove to be counterproductive.”
He may be overestimating the power of the British banks to shift global commodity prices; but he’s probably right that getting George Osborne’s latest whizzy schemes off the ground, including so-called “funding for lending”, announced at the Mansion House last month, will offer more help to the average BCC member than another bout of QE.
When a company releases a key document right at the end of the working week it is always worth more than a cursory glance. And so it was when Dixons annual report and accounts appeared at about teatime on Friday.
Somewhat unusually these days, it appears that former chief executive John Browett, who quit earlier this year to become head of Apple’s retail business, did what few directors do when they resign – he walked away without a wheelbarrow-load of cash.
However, the report also shows that octogenarian Lord Kalms – who transformed his dad’s camera shop into the vast electricals chain but retired a full 10 years ago – still receives more than £68,000 a year from the company. Nearly £33,000 (index-linked, natch) is payment to cover his probably not-too-onerous duties as honorary life president. The rest is the cost of providing medical insurance, a car and an office for the multimillionaire baron.
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