There was a time, many years ago, where all currencies in the world where tied to the amount of gold in the bank vaults of their central banks. The words “I promise to pay the bearer” hark back to the time when you could exchange your currency for real money, or gold.
Now, however, we live in an age of fiat currency and currency isn’t money. Currency is only worth what the market chooses to value it at, that’s why you get more or less for your holiday money depending where and when you go.
Now why would this have anything to do with generation rent and the property market I hear you ask?
Then let us examine the recent news of “Penthouse D” at the top of the One Hyde Park development in central London. “Penthouse D” sold for a reported £140m and according to the Guardian report has been purchased by an eastern European buyer. Being that the previous record was set by Ukrainian billionaire in 2011, it’s relatively safe to assume that the current crisis within Ukraine has a hand in this.
Someone affected by the instability of the region needed to park some money somewhere safe and really fast, so they turned to the London property market.
The situation in London is being made almost impossible for ordinary Londoners due to property becoming a new form of global currency. Nearly all the new property developments in London are financed by foreign investors looking to cash in on the hyper inflating prices whilst they are being bought by foreign investors to provide a cash cow with an asset attached.
It’s almost as if London property is such a stable commodity that investors consider it to be less volatile than gold. Parking money in properties that in some cases are simply left empty simply because London is a law abiding, safe and regulated environment insulated from the turmoils of the traditional stock, shares, bonds, gold and currency markets.
The distortion seen in the housing market is created by the financial speculation which prevents the very people that make a London function from living closer to where they work. This means they are forced to commute from the suburbs which is not only bad for the environment it also destroys family time and adds hours to the day of the key people you need in an emergency.
The food for thought here is what happens when markets or political situations stabilise? When these investors have somewhere safer and more profitable to park their cash the will flock to it like migrating birds. Manchester is already filled with blocks of 1 and 2 bedroom luxury flats built solely to cash in on the buy-to-let boom which now lie either empty or rented at rock bottom rates for social housing. Will London end up going the same way once the partys over?
After all, the developer of One Hyde Park said “We’re in boom-time prices, more expensive than we’ve ever seen in the history of mankind”
Well, we all know what follows a boom don’t we now.