LONDON (Reuters) – Custom at David Zambra’s upmarket central London shop, once a supplier of stationery to Queen Victoria’s family, has fallen 10 percent each year since 2009.
The British economy is weak and internet shopping on the rise but he blames super-rich foreign buyers who have snapped up homes in his Belgravia neighborhood, one of the world’s most affluent, leaving them empty for much of the year.
The wealthy including from the Middle East and Eastern Europe have poured money into luxury properties in places such as Mayfair and Knightsbridge, seen as safe investments during the financial crisis and footholds in a dynamic city.
Many are rarely visited by their owners, leaving parts of important economic areas deserted, squeezing local businesses already suffering in tough trading conditions.
The investment has helped estate agents, house sellers and those providing services to the owners when they are in town.
But others complain it has pushed up prices, making it harder for locals buy homes, widening the gap between the richest and poorest in London and damaging the fabric of local communities.
Several politicians say they are worried about the trend and are looking into the economic fallout.
“It (the local area) is in danger of becoming a ghost city because there aren’t enough people here all the time,” said Zambra, who bought the H.R. Stokes shop in 1989.
Overseas buyers of high-end London homes accounted for 38 percent of deals last year compared with 23 percent in 2005, data from property consultant Savills (SVS.L ) shows. Just over half were for use as a main home.
The figure for non-British buyers rises to 65 percent for homes worth more than five million pounds ($7.7 million) and 85 percent for new-build properties in the same price bracket.
Exacerbating the problem for retailers is a surge in the number of conversions of offices into more lucrative residential use, which further cuts passing custom. Figures from property consultant H2SO show a 168 percent rise in the amount of office floor space lost to residential last year versus 2011.
It has not dented steadily rising sales and footfall in top areas like Oxford Street or Regent Street, which ensures overall vacancy rates in London’s wealthiest postcodes are below the wider averages for the city and rest of the country.
But not far from the bright lights and tourists of these world-famous shopping strips, the outlook is gloomier.
Reuters spoke to more than a dozen retailers in such areas across Mayfair, Knightsbridge, Belgravia, Earl’s Court and Kensington and Chelsea who said custom was falling and most expressed concern about the effects of empty homes.
Nainesh Shah, who has worked in Knightsbridge and Belgravia for 32 years began to feel the impact in 2010, when footfall at his newsagent fell by a quarter and sales by over a fifth.
“They’re (overseas homeowners) not here with the interest of staying and building a relationship,” he said.
BUY-TO-LEAVE
Such comments tally with views expressed to the local government in Westminster, an area that includes many of London’s wealthiest streets and accounts for about 3 percent of national gross domestic product.
“Never mind about buy-to-let property, we are concerned about buy-to-leave,” said Rosemarie MacQueen, an official at Westminster City Council, which commissioned a study to be released later this year examining the impact of a rising number of homes compared with offices and shops.
“Given the contribution we (Westminster) make to the country’s GDP we have to be sure about every change of use to residential.”
Others spoken to by Reuters included the manager of a bakery, who declined to be named but said sales had slumped by a fifth at his Belgravia site, contrasting with the fortunes of a sister site on the main King’s Road shopping strip in Chelsea.
“The area is dying somehow. We get quite a lot of Russians coming in but they come just once and never come back.”
“They (small businesses) see a rich and affluent neighborhood and think the success will rub off but that’s simply not the case,” said Jane Morris, managing director of interior design shop Percy Bass in Knightsbridge, less than half a mile from the Harrods department store.
Politicians are taking note of the retailers’ distress, including Simon Hughes, the deputy leader of the Liberal Democrats, the junior party in Britain’s coalition government.
Hughes is lobbying for additional taxes for overseas homebuyers because of the capital’s housing shortage and said local businesses were also under threat.
“London is a series of villages and villages to survive need enough customers who go to the village pub, the village shop and the village bakery,” said Hughes, who is also a member of parliament for an area of central London.
Developers say politicians are just trying to win votes while ignoring the wider economic benefits of overseas money coming into London.
“These politicians have zero understanding of the London property market and make comments that are damaging and self-serving,” said Alex Michelin, co-founder of high-end residential developer Finchatton, which sells homes worth between 5 and 70 million pounds.
“These guys spend more than the average person spends in a year when they are here, all without using public services. Most world cities would give their left arm to have what London has.”
DISPARITIES
With the flow of overseas money showing no signs of slowing, there are risks to central London becoming a playground for the world’s rich while nearby areas such as Southwark, Lambeth and Tower Hamlets are home to some of Britain’s poorest parts.
Britain is second behind the United States among G20 countries for economic inequality and the disparity in central London is already more extreme than elsewhere in the country, said Stewart Lansley, an economist and author of a book on income equality.
A wide gap between rich and poor can stifle aspiration and fuel resentment as domestic buyers are pushed further afield and prices rise all the way down to the cheapest houses, making it harder for those with lower incomes to buy a home.
Lansley said economic instability also rises due to “growing levels of debt at the bottom” and a “speculative ball of money travelling the world” at the top.
“I don’t think the levels of inequality you see in central London are sustainable,” he said. “A whole army of cleaners and fast-food sellers on which the city depends are being forced out. Sooner or later something will have to give.”
Westminster Council shares these concerns and could introduce curbs on the residential sector, said MacQueen.
“This isn’t about a lack of money,” she said. “When you’ve got five residences, it becomes a problem of too much money.” ($1 = 0.6468 British pounds)
(Additional reporting by Jack Stubbs and Zhe Sun- editing by Anna Willard)
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