Beyond Londongrad

Three weeks ago, I listened to David Smith’s (the Economics Editor of the Sunday Times) address at the annual Matthews & Goodman’ Breakfast Briefing. At the end of it I was heartened by the prospect of:

• The UK’s faster than anticipated “bounce back” - post-pandemic
• A “good global (economic) recover”
• The Biden stimulus-package-inspired boost to the US economy
• UK business confidence ‘picking up’ after Omicron
• The UK is one of the largest recipient of Foreign Direct Investment (FDI) in the world made me feel quietly bullish.

But of course, every silver lining has a cloud and David went on to rock my boat by:

• Quoting the Bank of England’s (BoE) recent Monetary Policy Report Consumption
• “…consumption growth slows as household cut back on spending..”
• “… material adverse effects on their real incomes - from the sharp rises in energy and tradeable goods prices, and the planned increase in national insurance contributions…”
• Mentioning that inflation rates are rising fast in the UK, as well as the G7 markets
• And that BoE interest rates are expected to be subject to – “…at least four hikes this year up to1%-1.25% ...”

And of course, the forthcoming ‘tax hikes’ – NIC, Corporation Tax, income tax allowances and thresholds frozen for four years.

Within weeks, the headlines were all about Ukraine… and more importantly, the repercussions for ‘Londongrad’. UK sanctions on Russian banks, companies and individuals will obviously have a profound impact on Russian investment in UK property – both residential and commercial. According to (the anti-corruption organisation) Transparency International, at least £1.5bn of UK property is owned by Russians accused of financial crimes or have links to the Kremlin - not including properties whose registered legal owner is a Russian Company (because they are based in overseas locations such as the British Virgin Islands).

If the sanctions against Russian entities bite, who will plug the gap caused by their withdrawal (voluntary or forced) from the UK property market?

A few years ago I would have looked East, to China. But as David Smith commented the Chinese economy has slowed down significantly as it starts to align with its Western peers, in terms of growth rate and prospects. Once, its economy was growing at 10% a year but now, it will probably be closer to half that. By now, the Chinese economy should have been the largest in the world (overtaking the US), however this is unlikely to happen until at least the mid-2020s.

In addition, a falling fertility rate and an aging population suggest that China faces the same growth and GDP challenges as the western world.

So which nation should we be wooing to attract inward investment.

The clue might be in David’s closing observation to the webinar – India.

Consider the facts:

• Last year, India was the fastest growing (large) economy in the world – at over 8%
• It is anticipated to grow by 9.2% in the current financial year
• Unlike China and the rest of the developed world, over 65% of the population is under the age of 35 – with 50% below the age of 25 and only 5%+ over the age of 65
• Trade between the UK and India grew by almost 9% last year:
• Total exports to India amounted to £7.7bn
• Total imports from India amounted to £13.8bn
• But India was still only our 15th largest trading partner.

But India was still only our 15th largest trading partner.

Given the departure of the Rouble billionaires, the creeping dotage of the Chinese people and the slowing down of their economy, perhaps our destiny lies in the foothills of the youth driven bristling Indian economy and its overseas investors.

Maybe ‘Londongrad’ could morph into ‘London-bai’ (a derivative of Mumbai).

I know India is the second largest source of FDI in the UK, so allow me to join the wooing of potential Indian investors and make the case for investing in UK Real Estate. We know Indian investors are here already: almost 900 Indian businesses have invested in the UK, delivering a combined turnover of £48bn.

Why are they here? Because:

• Almost 45% of Indian investors opted for the UK because of potential yields
• Over 30% selected the UK because of the stability our nation offers
• Average rental yield is around 4.8%, while in India it is almost a third lower
• The substantial price increases in regional markets represent excellent ROI
• London continues to shine – it hit an all-time high for Indian investors, last year

I would suggest that like the US, Boris’s ‘Global Britain’ strategy should focus much more on building stronger strategic partnerships with the ‘Quad’ (Australia, India, Japan, US – a strategic coalition between the leading Indo-Pacific economies).

*Attributed to former UK Prime Minister, Harold Wilson