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London - Living in a bubble

Harold Wilson famously once said "a week is a long time in politics". I have just spent the best part of a week in London and this old adage can be equally applied to the financial services industry.

I set out from Jersey last Tuesday in the wind, rain and hail contemplating whether summer was actually a thing of the past and that the inclement weather would serve as a barometer of likely headwinds ahead. However, London never fails to amaze and I find myself in the pulsating and vibrant capital still clearly lording it up as the kingpin of Europe when it comes to international financial and legal advice.

Why?

Undoubtedly, Olympic fever is building – the capital is gearing itself to be in the international spotlight – previously unfinished eyesore projects are racing to be completed, transportation networks are being upgraded and the Union Jacks are proudly flying above Regent Street.

London is also clearly an attractive and tangible hedge against troubled times and more and more internationally based wealthy individuals are locating their assets to London and increasingly its surrounding suburbs attracted by its safe haven status.

The continued fall out following the Arab Spring, protests in Moscow, the fragility of Europe and genuine concern about political instability of their home territory continue to inflate the bubble. According to Knight Frank’s Prime Global Cities index, London experienced the 4th highest annual increase (11.3%) in prime property values in the twelve months to March 2012 only beaten by Nairobi (24.2%), Jakarta (14.3%) and Miami (13.9%).

Interestingly, Italians have now usurped Russians as the purchase of prime property in London (8% of the market) and a weaker than normal bonus season in the City saw foreign investors of property valued at £5 million plus exceed local buyers.

Having personally witnessed the 2008 property bubble in Dubai at first hand, I cannot help reflect that Groundhog day is around the corner, however, I think this bubble has some more gas in it yet:-

  • No matter what your political persuasion, the UK coalition government is perceived as far more stable than our European friends and foes – France has just elevated Hollande to pole position, Super Mario is a bedding into Italy (hopefully not in the same way as Mr Berlusconi) and Mrs Merkel has her own electoral challenges ahead.
  • Educating your children in Britain is still seen as a key motivator for people moving to the UK. The investor visa route is becoming more widely utilized attracting some top talent as well as wealth to the country – this is immigration at its best.
  • The advent of a 15% charge to stamp duty on company ownership of UK properties valued at over £2 million surely will stem some of the tide. Apparently not, when attending the Jersey Finance Private Client Seminar held at the fabulous British Museum (an event Affinity were immensely proud to co-sponsor) a Lawyer freely admitted they were still transacting deals for clients willing to pay the top level of stamp because they wanted to protect their Inheritance Tax exposure and confidentiality. We will have to see whether the possible addition of an annual "mansion tax" and the threat of capital gains upon sale will sound the demise of company ownership.

Penning this article on the plane home looking at the sun setting on what has been a glorious day in London lifts the spirits. Summer is actually coming after all. However, London is a bubble – if it were a calibrator for the whole of the UK we would be partying like it was 1969 – it’s not but the fat lady is not even girding her loins.

Still what a difference a week makes.