For some time now, London has been one of the most lucrative real estate locations in the world, and the demand has risen dramatically, along with prices. In October 2013, asking prices in London real estate rose a dramatic 10 percent, with a large portion of demand from overseas buyers driving the prices up. More than anywhere else in the UK, the culturally and socially diverse European Super-City of London has experienced a greater demand for housing, and has become very used to attracting the world’s wealthiest people. Despite this however, the gap between wealthy and poor remains, and the city’s population of 8 million may not be able to afford these rising prices anymore. This is beginning to show the characteristics of a real estate bubble.
From a critical perspective, it would seem that some members of the investment community are regarding the London real estate market as a new reserve currency, as both local investors/residents and foreign investors seek homes. As market speculation and property prices rise, the more London residents become desperate to get their feet inside a home of their own, fearing they might never get a chance to do so. As such, more investment-seekers are drawn in, seeing London real estate as an asset that just keeps increasing in value. However, some analysts believe this will eventually form a bubble so big, it will have no choice but to burst.
Unlike other income producing assets, real estate is subject to the negative influences of political unrest and economic uncertainty, which have demonstrated time and again that they can cause currency and property values to drop sharply. Although investors can look at real estate however they might like to, there is no getting away from the fact that real estate is a depreciating asset. Investing into a depreciating asset and hoping for a real price increase, or even to preserve your purchasing power, is merely only a speculation, and not a wise or productive investment. Nowadays, investors are seeking investments that have proven they can help beat rising inflation and deliver returns, regardless of the economic or political climate.