Asian buyers, who dominate the market for new and off-plan homes in London, are increasingly worried about anti-foreigner sentiment in both the government and the British public that has already led to an increase in capital-gains tax.
"It's increasingly likely that the U.K. government will carry out the same policy as has been implemented in Asia," Mark Farmer, the head of residential property at the consulting company E.C. Harris, says. "There's lots of negative sentiment about foreign investment in London, and much of it probably misguided. But you can't deny that is right up there on the agenda."
Britain, a popular tax haven for foreigners, has already announced that as of April 2015, foreign owners will have to pay capital gains tax on any property-sale profits. Currently, only second-home owners who are U.K. residents had to pay the tax, typically at 28 percent on any rise in value.
"Britain is an open country that welcomes investment from all over the world," Chancellor George Osborne said in announcing the change in December. "But it's not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence - while those who don't live here do not."
Questions are starting to mount as to just how much Britain does want investment from all over the world. With the London market awash with money from Russian oligarchs, Middle Eastern sheiks, and Indian and Chinese billionaires, there's rising resentment.
Opposition chancellor Ed Balls has floated the idea of a "mansion tax" on homes worth over £2 million, where the owner would pay 1 percent of any value over that price each year. Already, the stamp duty on purchases of homes over £2 million has been raised to 7 percent.
The idea has also been raised of charging the mansion tax only on foreign, non-resident property owners, by Mark Field, who represents a central London district in parliament.
The average price of an apartment in central London has surpassed £1 million ($1.7 million) for the first time, according to chartered surveyors Cluttons said last year. With many people unable to buy at those price levels, tenancies in the British capital have risen by 80 percent in the last decade.
Even more drastic curbs on foreign buyers, along the lines of those introduced in Asia, aren't out of the question. Alarmed at skyrocketing home prices, Hong Kong and Singapore have introduced special taxes on foreigners who are buying property, forcing them to pay 15 percent over the price of locals.
Asian buyers account for as much as 70 percent of all new-home purchases in London, according to Knight Frank. They're mainly from Hong Kong, Singapore and Malaysia, all countries with colonial ties to Britain.
Mainland Chinese buyers are also increasingly active, often willing to buy in riskier, fringe locations, where they see the chance of much quicker home-price profits. But their presence could dry up with fresh restrictions, with Chinese buyers not tied by any nostalgic feelings, and already moving strongly into U.S., Australian and Canadian markets.
"The Chinese market is very astute and very fickle," Farmer says. "Any changes in tax will change the demand."
London is the fifth-most expensive city in which to rent a three-bedroom home, a study of luxury rentals from human-resources specialists ECA International showed last week, up one spot from the previous year. In Europe, only Moscow is more expensive. Hong Kong tops the list at $12,000 per month for an unfurnished flat.
"There's a real nervousness about rental affordability," Farmer says. "Investors are buying off plan, with a view to renting them out for rental yield. At what point do they become unaffordable for Londoners for Asian buyers to rent them out?"