Hedge fund managers to 'outspend bankers on London properties'

Hedge fund managers are expected to spend more than bankers on prime London properties for the first time as the City feels the squeeze on bonuses, according to a report.

Bankers will be less inclined to invest money in London’s booming prime housing market this year because of reduced bonus payments, property consultancy Savills found.

Bonuses helped bankers drive a rapid increase in the price of London properties between 2006 and 2007, the report said, but now it is overseas investors and buyers from the hedge fund and private office-filled West End district that are most important to the market.

The report said: “Until that point, there had been a strong link between house price movements in the capital and bonus payments, but that link is now broken and the market’s dependency on City bonuses is much reduced.”

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West End buyers are expected to spend £1.5bn on property in the capital priced at more than £500,000 this year, while City bankers are forecast to spend a little more than £1bn in bonus money.

London’s status as a ‘safe haven’ for investors is expected to continue to attract a large number of international investors. They will spend about £4bn on the prime property market in the capital, the report said.

Savills head of residential research Yolande Barnes said: “We have seen untoward global events – such as growing crisis in the eurozone and the threat of an Asian slowdown, for example – actually boost London as a ‘safe haven’, wealth preservation destination for global investors.

“If such international investor activity were to reduce, the London market would become more reliant on domestically-generated wealth again.”

Bank employees who do receive bonus payouts can expect them to be trimmed by at least 30 per cent, headhunters and bankers have predicted, while a significant proportion of them will not receive a bonus at all.

Despite the number of overseas investors currently pumping money into the prime London property market, Barnes believes the capital will not always be dependent on foreign cash to thrive.

Barnes said: “We are seeing early signs that international wealth can be replaced by new equity, particularly from the private offices and hedge funds – the West End cash generators.

“London is expected to be the driver of the UK’s economic recovery, in which case stock issues, profits and some bonuses (or other types of performance reward) will kick into action again, generating price growth in those residential markets, including prime London, favoured by the recipients.”