Does the Presence of Foreign Buyers in the London Housing Market Engender Information Asymmetry for the Benefit of Informed Sellers?

Foreign buyers of residential properties in London have been rightly or wrongly blamed for rising residential property prices in the city. Similarly the perceived social impact of the presence of foreign buyers in the London Housing market, such as gentrification and ghost neighbourhoods, has been a “celebrated” news in the media and one of the topical discourses in previous research on foreign buyers in the London market. Notwithstanding, there has been no rigorous study to establish that the presence of foreign buyers in the market indeed causes housing price inflation. This paper is therefore aimed at ascertaining the prevalence of foreign buyers housing price premium, if any, attributable to asymmetry of information between informed and uninformed residential property sellers, and whether any such premium is sustainable over time. The study leverages on the concepts and theories of information asymmetry and uses econometric models to analyse housing transaction data from the Land Registry and the Private Eye over the period of 2000 to 2014 inclusive. The analyses are based on the Broad Rental Market Areas and Post Code Sectors of London to ensure comparability of the houses under investigation. The preliminary results show that the presence of foreign buyers in the London housing market creates information asymmetry between informed and uninformed sellers to lead to statistically significant foreign buyers house price premium for virtually all the Broad Rental Market Areas of London. However the premium reduces over time as information gradually trickles through the market mechanism to the uninformed sellers group at the entry point of foreign buyers in the market. The results of the study would be of interest to developers, investors, fund providers and policy makers related to the London housing market as well as practitioners and researchers.