Business Times: Tue, Feb 28
(SINGAPORE) London properties continue to lure investors, in large part supported by the weaker pound sterling, as well as the economic uncertainty that plagues Europe, say industry players.
'Ironically, economic and even political turmoil have provided the impetus for growth - with a sharp growth in investors looking for a safe-haven location for at least part of their wealth portfolio,' pointed out Liam Bailey, Knight Frank's head of residential research.
According to Knight Frank's Oxford office, international buyers bought 40 per cent of its prime stock in Oxford City in 2011.
'Providing an interpreter is now part of our weekly business, with overseas buyers becoming extremely focused. If they see something they like and it adds up, they make very fast decisions and look to close a deal quickly with little borrowings,' noted Damian Gray, partner at Knight Frank and head of the Oxford office.
In the past two years, Knight Frank's Oxford office has seen sales to international applicants rise by 50 per cent, with the strongest demand for houses valued at over £2.5 million and a marked increase in buyers from Asia and Russia.
Said Mr Gray: 'We recently sold three properties to buyers from Asia; in one instance, the buyers were only in the country for a limited period of time so we took them on a tour and by the end of the day they had bought.'
'As well as being attracted by the excellent schooling and arguably the most famous university, other factors that appeal to Asian buyers include the growth of innovative technology companies and the large number of teaching hospitals. Shopping also comes into the equation, as we are also often asked how far Bicester Village Retail Park is,' he quipped.
According to Camilla Dell, managing partner at UK-based property consultancy, Black Brick Property Solutions, about 20 per cent of the agency's clients are from Asia, a 300 per cent increase in the last two years. Of this, about half are from Singapore.
She said: 'Over the past 12 months, we have seen an increase in buyers driven by the weakness in (the) sterling. Also, a lot of buyers from Asia used to buy properties in Australia, in particular Perth. However, the Australian dollar has been very strong (and as a result) London is proving to be a better option for investing in the property market.'
The trend of parents amassing portfolios for children studying or working in the British city has been supported by the increasing number of Asian students being schooled in the UK.
For the year 2009/10 the enrolment of Singaporean students at UK higher education institutions was 4,125, according to data from the Higher Education Statistics Agency (HESA), UK's official agency for the collection, analysis and dissemination of information about higher education. Overall, the number of students hailing from Asia jumped from 171,950 in 2009/10 to 185,675 in 2010/11.
Central London estate agency Kay & Co's managing director, Martin Bikhit, cited the example of a Singaporean client who had purchased a four-bedroom apartment in Regent's Park for £1.05 million in 1999.
'Now that their daughter has finished her studies, the property is surplus to requirements and they have just resold it at £3.78 million, an increase of 260 per cent, or an average growth rate of 20 per cent over the 13-year period,' he said.
According to the Prime Central London Index, compiled by Knight Frank, prices of prime central London residential property rose overall by 0.9 per cent in January 2012 alone. Prices of prime property in the city and city fringe areas rose by an average of 0.8 per cent.
Gary Hersham, partner at Beauchamp Estates, noted that when the company launched phase one of the 169-unit Islington Square in Asia over three consecutive weekends, 45 flats were sold from plan.
Of the 45 units sold, there were three cases of purchasers who bought two flats each - one for investment, and one for their children.
Buyers were exclusively Asian residents, many of whom were pure cash purchasers. Of the 45 units sold, about half were sold in Singapore, he added.
Units in the development start at £485,000 for a studio flat, £550,000 for a one-bedroom flat, and £835,000 for a two-bedroom flat.
According to Mr Hersham, about 3.2 per cent of his clients are from Singapore, a figure that has increased by an average of 3 per cent per annum.
A favourable exchange rate plays a key role in the influx of Asian buyers, given that Thai and Singapore purchasers can acquire property at a 19 per cent discount to prices three years ago, even though values are now back on par with the peak for purchasers within the Eurozone, said Beauchamp Estates.
That being said, Europe's sovereign debt crisis is driving more Greek, Italian and Spanish buyers to prime central London property as they seek a 'safe haven' for their cash, says Simon Hedley of the Marylebone property consultancy, Druce & Co.
According to Mr Hedley, more than 35 per cent of all the consultancy's buyers are from Greece, Italy or Spain, an unusually high number.
'Today there are between 45 and 50 Greek, Spanish and Italian buyers on our books, so there's been an increase of well over 40 per cent (over last year's figures),' said Mr Hedley.
'Many (of our European) clients are seeking tax efficiencies as it becomes increasingly clear that their governments' austerity measures are likely to lead to higher taxes on the wealthy. They're also using London property as an exchange-rate hedge, opting to hold investments in sterling rather than the highly volatile euro,' he added.
This has led to a fast growing trend of Marylebone's commercial property being turned into luxury residential property to fuel demand from foreign investors looking for 'safe haven' prime London property, noted Mr Hedley.
'In Marylebone, property developers are snapping up many of the commercial buildings surrounding Harley Street and turning them into luxury apartments. This is to meet demand for prime London residential property from wealthy international investors, keen to shelter their cash from the sovereign debt crisis and the Arab Spring,' he added.
Knight Frank's Mr Bailey noted: 'The strength of London's luxury sector, against a backdrop of economic difficulties both domestically and globally, has surprised many over the past year.'
In particular, the sector leading price growth is the £1 million to £2.5 million segment, which provides a perfect investment lot size for investors; prices in this price range have risen 14.4 per cent over the past 12 months.
While the investment potential is real, Kay & Co's Mr Bikhit said that investors should conduct independent research.
'We would suggest that any investor think carefully about the quality and location of where they invest. With hundreds of developments being marketed to Singaporean investors, it is very easy to end up buying in a less sought-after location, and paying the price of a more sought-after one.'
Black Brick Property Solution's Ms Dell agreed: 'All of the large estate agents and developers are doing regular road shows to Hong Kong, Singapore and Malaysia to sell new development projects. Buyers need to be very aware of property they have never seen, or which are located in areas they are not familiar with.'
There have also been cases of investors getting burnt by overseas property investments.
Last week, BT reported that Canada-based Edgeworth Properties Inc had obtained court protection to restructure its operations, including closing its Asian offices, thus putting more than 4,000 Asian investors - of which more than 2,000 investors are from Singapore - in a bind, after investing some C$70 million (S$88 million) in 12 parcels in Alberta between 2007 and 2011. The investors received land titles to only three of the properties.
Such land-banking firms typically buy rural land with the intent to rezone it into commercial or residential use, or both. In turn, investors are invited to buy parcels of land.
In Edgeworth's case, the Asian investors said they were allegedly promised net returns of 60, 80 or 100 per cent on so-called undivided property interests in Canada, depending on when the raw land obtains development approvals and when they exit their investments. This is expected to take five years or less.
Less than two years ago, the Commercial Affairs Department (CAD) started probing Profitable Plots for allegedly not paying investors. In this case, about 1,500 Singaporeans and 4,000 foreigners are believed to have invested in the land investment firm.
The firm was raided by the CAD in August 2010 after some investors alleged that it owed them money. To date, the complaints involve investments of more than $30 million.
According to Knight Frank's super-prime London Report 2011, buyers from Russia and the former CIS states will play an increasingly important role in the London marketplace.
'Demand from Chinese nationals, which was negligible until 2010 was expected to continue its recent rapid growth, followed by Indian and Middle Eastern demand', the report added.
Source: Business Times