British home buyers fear a 'super bubble'

Reception area for million-dollar home in London. House prices in the British capital are rocketing, fueling talk of a price bubble or even a “super-bubble”. 

Peter Rollings, chief executive of Real Estate agency Marsh and Parsons.

There’s an old saying that an Englishman's home is his castle.

If he lives in London, it's likely to be a pretty small castle, and there definitely won't be room for a moat -- unless he’s prepared to pay a king's ransom.

House prices in the British capital are rising at breakneck speed, fueling talk of a price bubble, or even a superbubble.

Prices rose 18 percent last year, according to a recent survey by the Nationwide Building Society. The average price of a home in the British capital is now more than $600,000.    In a desirable part of town, a simple two-bedroom condo can cost millions.

“We’re doing great business here, and have done since early 2009 when the market recovered,” says Peter Rollings, chief executive of real-estate agency Marsh and Parsons. “We’re now 40-50 percent  above our 2007 highs, driven by super demand from UK and overseas buyers.”

But while property agents are breaking out the champagne, it is becoming increasingly difficult for people on ordinary incomes to get into the market. One such person is Jacob Kennedy, a software engineer who works in London’s financial district.

“The prices always seem to go up just at the point when I think I might be able to afford it,” he says. “I always seem to be one or two steps behind the curve”.

Some experts claim hot money from abroad is distorting the market, and rich foreigners looking for a lucrative investment are pricing locals out of London. Daniel Bentley of the think tank Civitas says something needs to be done about it.

“I think we need to introduce new restrictions on foreign investors, and make sure that with each investment that is made, that money is creating new housing and not simply adding to the demand,” he says.

But others disagree. Peter Rollings believes London property has always been unaffordable for most people.

“It’s a city-state," he says. “Here, where we are in prime central London,  probably 40-45 percent of our buyers last year were from overseas. Now that doesn’t mean jetting in, buying a property, and jetting off again. It means they are living here and contributing to the local economy. So anyone who wants to get rid of them is in cloud cuckoo land, I think.”

Some analysts believe that the property market in this city is already heavily overvalued, that it's a bubble waiting to burst, and prices could one day plummet.

If that happens, it will certainly be welcomed by London's legions of would-be housebuyers. Right now, there’s little sign of it.

Peter Rollings, chief executive of Real Estate agency Marsh and Parsons.

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