LONDON—Wealthy investors from Russia, China and other parts of Asia have been scooping up homes in the U.K. capital for years, turning high-end property here into one of the hottest global assets. Now, with many of those emerging economies slowing sharply, some analysts are predicting that parts of the London market could soon feel the pinch. Recent market turmoil in Asia means the high-end housing market in London “will definitely suffer,” according to Dorian Beresford, group director of strategy and business development at real-estate consultancy Strawberry Star. While there is still interest from abroad, “that part of the market will take a hit,” Mr. Beresford said. More: Prices Soften in Prime London Neighborhoods Foreign investors have tended to target the priciest London pads. Buyers from Russia and the Middle East typically gravitated to mansions and penthouses in posh locales. Asian buyers have been big investors in high-rise condominium projects that have proliferated across London and the rest of the country. Those off-plan sales to Asia have started to slow, said Simon Durkin, head of research at BNP Paribas Real Estate. “Given the devaluation of the currency [in China], it will put the brakes on a bit,” he said. London hasn’t been alone in attracting robust demand from abroad. New York, Vancouver and San Francisco are among other cities that have proven popular with foreign investors seeking havens. The demand in London, alongside an acute housing shortage, has seen average home prices rise over 70% since 2009, according to the Office for National Statistics data. More: London Luxury Buyers Get Younger But home prices in London’s prime market have been falling. In the prime London market, the average price paid a square foot was 0.9% lower in the second quarter of 2015 from the same quarter of 2014, according to data firm LonRes. Transactions were down 23%. Prices near historical highs, the strength of the sterling, and a change to key property tax are among chief culprits, analysts said. Even before the escalation of the global market tumult in recent days, foreign investment flowing into the most expensive London property from some ailing emerging economies had waned.
In London’s prime central housing market, 3.8% of buyers were from China in the first half of 2015, down from 4.1% in the same period last year, according to real-estate broker Savills. Russians buyers have also pulled back, making up 2.9% of buyers in central London in the first half of 2015, down from 4.1% in the same period last year, according to real-estate broker Knight Frank. “Even though overseas inward investment makes up a relatively small number of deals, it’s those trades that push or pull the whole market,” said Peter Rees, professor of places and city planning at University College London. More: U.K. Brokers on Interest Rates: Don’t Be Alarmed In China, recent stock market volatility came after the central bank devalued the currency. The yuan has lost 9.2% of its value to sterling since the peak in April. The economy in Russia, faced with low oil prices and Western sanctions, is in recession. The ruble has lost 45% of its value to sterling since last August. Russians “looking to splash their cash on big signature properties are gone,” said Roman Grigorjev, property buying agent at LonGrad Ltd. “There are a lot of Russians whose fortunes have changed in the last year.”
Up until the end of last year when the ruble collapsed, “there was still strong demand from Russians. Then it slowed down completely,” Mr. Grigorjev said. “Those who were flying private jets are now looking to sell.” For Chinese buyers, some analysts say it is still early to see what the full effects will eventually be. When the Chinese stock market dropped precipitously Monday, “I thought this could be what is needed to prick the bubble,” said Mr. Rees. But it might not be that simple, he said. “We may find that this increases the desire to get money out of these regions. That could just push the market in London up even further,” he said. This article originally appeared in The Wall Street Journal.