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The UK is in recession and the global economic mood is dampening. However, prices of real estate in the British capital are pressured to the upside.

If it goes too far, the imploding of this bubble could inflict more damage in the future.

House prices fell at the global financial crisis. As time passed by, British housing stabilized. But, this stabilization wasn’t even: prices in the British capital rose fast, while housing in other areas didn’t enjoy the same recovery.

With the recent crisis, there’s even more pressure:

  • Rich Greeks are moving their capital away from the country and are showing great interest in properties. They are fleeing not only their country but also the euro-zone.
  • Rich French are also fearful of the “I don’t like the rich” attitude of the new French president Françios Hollande, and some also seek London properties instead of French taxes, similar to a move seen in 1981, when Mitterand was elected.
  • The Olympic games and the Diamond Jubilee celebrations also contribute to flows into the city, and they could turn into investments in properties as well.

There’s no doubt that London is one of the world’s most important cities and a financial capital that justifies higher prices than other cities.

However, if prices rise too much without any correlation to the economic situation, they could also come down too fast, weighing on the British economy.

Further reading: GBP/USD Weekly Outlook.