Tuesday, 14 January 2014

We interrupt this Blog for a New Year Party Political Broadcast.

As the nation's property big guns heralded New Year with a glass of vintage champers at their country estates, we were sipping lukewarm still water roughly 35,000 feet above Siberia on the way to Hong Kong.

The ever-so British pilot did at some point say that it was 10 seconds to midnight in the UK, and unenthusiastically proceeded to countdown to New Year. But most of the HK Chinese asleep around me couldn't have cared less. And it did seem rather pointless given it was already well into 2014 below us in the icy steppes.

Our annual visit to my stepson (and property partner) began with an evening trip across to Kowloon on the Star Ferry. This is the perfect introduction to the city. You are on a rusting, bobbing piece of traditional old HK looking at a vividly illuminated and utterly breathtaking futuristic skyline that makes New York look positively dowdy.

It's an intoxicating view and sitting there on the ferry's aged wooden benches you can almost feel the pulsating energy of the city's economy reflected in the evening light show.

This is an island city where, hemmed in by sea and hills, the ever higher buildings are both necessary and a potent symbol of Hong Kong's ambition.

For a number of years, property prices have been climbing even higher than the towers. Recently, however, things have gone decidedly flat in the local market.

Last time I was in our old colony, the Beijing controlled local government suddenly imposed a massive hike in property taxes. This was designed to cool a feverish market and its certainly done that.

Sales have fallen off a cliff, over 1000 estate agents have lost their jobs and dozens of EA offices have closed.

Prices don't seem to have fallen much, but buyer interest has. A beautiful penthouse we know in an good part of the Western District has had just one viewing in the 3 months since it hit the market. A year ago it might well have sold within days.

If the imposition of higher taxes can have this effect in a dynamic market like HK, just think what they could do in the more fragile environment of London - where the recovery is patchy and markets are hyper-sensitive.

As we all know, further proposed property taxes threaten London's top end market. And when the top end comes under pressure there's a top-down effect across the entire city.

I have a rich friend (well, I like to call anyone rich a friend, don't you) who is just about to put his £15m London house on the market. Not because he particularly wants to sell. Not even because he actually needs the money. No, it's because, like most of us, he hates paying tax.

He's selling up because he's worried about the threatened Mansion Tax.

In France, where he has another beautiful house, he already faces annual wealth taxes. Add an extra confiscatory tax to his London property and life really does become tougher. Even for those nibbling at the foot of the Rich List.

It seems that wherever you look governments are tapping the property owning rich to help paper over their own continuing mismanagement of the economy.

That's not just unfair, it's potentially disastrous.

In France, of course, it would be par for the course. They have a pathological loathing of anyone with money and, as a result, have an increasingly weak, and largely state-based economy.

In Britain, however, I like to think we have a more grown-up attitude to the role of government and the value of wealth-creating individuals.

I have lived in London for about 40 years, and while the place has undoubtedly got richer in that time it's certainly not as a result of government spending.

Indeed the bits that our taxes pay for like schools, hospitals, roads and public transport seem to have made little or no progress. If anything, they are arguably far worse.

What's made our city richer has been the massive influx of other nationalities, a tax environment that has encouraged us to create jobs and wealth and, in the 80s, the liberalisation of financial regulation that enabled the City to become a global powerhouse.

When I first arrived here, the only people it was hard to understand turned out to be Australians living in Earl's Court bedsitters.

Today, I can probably overhear a dozen different languages just walking to the corner shop. (And no, for those who know me, the corner shop I'm thinking of isn't Harrods.)

If I'm honest, this can be a bit disconcerting, but overall it's a wonderful compliment to us that so many people from all over the world want to come to our city. Either to spend money, or make it.

Unlike Hong Kong, our attraction isn't the presence of a nearby emerging superpower like China, it's much more subtle and much easier to destroy.

While the HK property market may take a battering for a while, it will survive because people who want to trade with China have to be there.

People don't have to be in London.

They are here because they choose to be in a country that respects the endeavours and aspirations of people seeking to improve their position, and doesn't overly penalise those who've 'made it'.

I may, these days, have a slightly posher accent and live in Chelsea but my mother was a cleaner for many years and my father a worker who never earned more than £20 a week in his life.

Nobody stopped me moving out of my background. It was actually easy. In London, even 40 years ago, I could be anything I wanted.

That's what I loved, and still love, about the place.

And it's this largely intangible appeal of our remarkable capital that could be so quickly derailed by the populist posturing of a Vince Cable (or, for that matter, the barking banter of Boris Johnson).

I'll give you a couple of examples:

Just 100 yards from a flat we recently sold, a Saudi royal family owns a large house and several flats. When they're in town, they employ 5 drivers on permanent standby. They also employ cleaners, caterers, gardeners, builders and many others. They don't work themselves, of course, so they go shopping or go to restaurants.

In other words, they pour money into the London economy. Vast quantities of it. The benefits of this far outweigh any that might be gained from imposing some nasty, spiteful Mansion Tax. Especially since the tax might curtail or even end their visits.

Bye bye jobs. Hello, lots more benefit claimants. How sensible is that?

At the other end of the spectrum, we have employed the same cleaner for the last 13 years. She arrived as a young Polish woman. She had a husband and a young child, but left them behind in her home country to try to make a better life for them here. Thanks to London and her sacrifice, she has slowly built a far better life. The whole family now live here. They aren't rich, but they have a decent home, make reasonable money and have a future that's decidedly rosier than it was.

London gave Anna and her family that chance. And even though her somewhat guarded Polish attitude sometime irritates, I am proud that our city gave her that opportunity.

Confiscatory taxes on the rich don't just affect the rich. They also ultimately affect thousands like Anna. People who contribute far more to our economy than they ever take from government handouts. (Unlike the often lazy, benefit cheating English people we'd occasionally employed before.)

Anyway, enough of the political drum beating. You get the point, I hope.

Property taxes, for the rich or anyone else, are of course only a small element of the mix. But they can, as Hong Kongers will tell you, have a devastating effect.

In London, the ridiculous stamp duty structure has already dealt a heavy blow to the market over £2m. Any further tinkering could be utterly disastrous.

Immense wealth and abject poverty have always been a part of our city. And, in all the time I've been here, I have never seen any evidence that you can eradicate one by heavily taxing the other.

Quite the reverse, in fact.