Radical plans to stop rich overseas residents who live outside the EU buying British houses – as well as tight restrictions on them acquiring “newbuild” properties as investments – will be published in a report by a leading rightwing thinktank on Monday.
Free-market organisation Civitas castigates government ministers for allowing wealthy foreign investors to stoke a property boom that it says is driving up prices and locking millions of UK citizens out of the housing market.
The plans would prevent the likes of Roman Abramovich, owner of Chelsea football club, or other Russian oligarchs from adding to their multimillion-pound UK portfolios. They also aim to stem a flood of investment from countries such as China, Malaysia and Singapore.
Concerned that many middle and lower earners are being forced to pay high rents in London because they can’t afford to buy, Civitas calls on ministers to adopt a scheme similar to one operating in Australia, which ensures that no sale can take place to overseas buyers unless they can show that their investment will add to existing housing stock.
Such a system would mean that no existing home could be sold to a buyer from outside the EU, and that such buyers could acquire newbuild homes only if their investment led to one or more additional properties being built.
The report, called Finding Shelter, cites statistics showing that 85% of prime London property purchases in 2012 were made with overseas money. Estate agent Savills found that last year £7bn of international money was spent on “high-end” London homes, with just 20% of that spent by UK citizens. Two-thirds of homes bought by people from overseas were not purchased for owner-occupation but as investments.
Civitas says the problem is not confined to the top end of the market and that overseas buyers are also acquiring less expensive newbuild homes. It says that over the past two years only 27% of new homes in central London went to UK buyers, while more than half were sold to residents of Singapore, Hong Kong, China, Malaysia and Russia.
“The UK property market is being used as an investment vehicle by the global super-rich – and increasingly the simply well-to-do,” the report says. “The inflationary impact of this extra cash is good news for property owners – until they want to trade up the housing ladder.
“It is good news for estate agents on commission, who report with glee every pulse and surge in the market. But it is not good for those already being priced out at the bottom.”
Overseas investment, it adds, is also “distorting housebuilding priorities, with developers disproportionately attracted to high-value developments while ignoring the undersupply at lower levels of the market.”
Oligarchs including Abramovich and former Yukos Oil vice-president Konstantin Kagalovsky have bought London properties, with Belgravia, Knightsbridge, Kensington and Chelsea their favourite hunting grounds.
Under Australia’s scheme, all foreign non-residents and holders of short-term visas have to apply to the Foreign Investment Review Board if they want to buy property. Its rules state that they can do so only if their investment leads to an increase in available dwellings.
Civitas says that if a similar scheme were adopted here, people from outside the EU would be able buy a newbuild property only if they had invested in a building scheme.
In last year’s autumn statement the chancellor, George Osborne, announced that he was closing a loophole that had allowed foreign investors to make huge profits on sales of UK homes by avoiding any capital gains tax. Civitas says that move, while a step forward, is unlikely to deter them, because the booming British market remains so attractive.
Labour recently announced a series of measures to boost housebuilding and deter foreign investment in London, including changing the rules so that newbuild homes have to be marketed to Londoners first, rather than sold off-plan to investors around the world. It also plans to double council tax for homes left empty and will end another loophole that allows overseas owners to cut their tax bills by claiming their properties are “second homes” and furnishing them with minimal items such a single table and chair.
Sadiq Khan, the shadow London minister, said: “London is in the middle of a severe housing crisis, yet there are around 50,000 empty homes across the city. It’s complete madness. We must stop housing that’s built as family homes being used instead as a piggy bank for the world’s wealthiest people.
“We urgently need to build more affordable housing in London, but unless all new homes are made available for Londoners to buy, they won’t help solve the crisis.”