As more wealthy Singaporeans and other Asians seek to buy property in prime overseas locations such as London, whether for investment or residence, their private bankers are only too happy to help.
The wealth management divisions of banks are reporting brisk business in setting up short-term revolving loans for property purchases. The term is usually five years, renewable annually after that, and the interest rate is set individually according to the borrower’s credit profile.
Ms Michelle Tan, head of real estate product management at Bank of Singapore, a unit of Oversea-Chinese Banking, said: “Many wealthy people may want to maintain their liquidity rather than applying it to the real estate assets, as liquidity allows them to take advantage of investment or business opportunities that may arise.”
Given the low interest rates in the region, it makes sense for clients to borrow against property and use the cash for investments to generate higher returns, said Mr Yves-Alain Sommerhalder, head of ultra high-net-worth solutions at Credit Suisse’s private banking operations in the Asia-Pacific region.
Another goal is to take advantage of low interest rates on loans, and to borrow in Asian currencies that have appreciated in recent years against Western ones like the British pound.
The currency play is important, since about 57 per cent of wealthy investors named London as their top target market for property purchases, according to a survey by real estate agency Cluttons and consulting firm VPC Asia Pacific.
Investors surveyed in Singapore and Kuala Lumpur identified the central London residential market as their primary target for offshore investments, while wealthy Indonesians placed London in third position, after Singapore and Australia.
Mr Bryan Henning, head of global research and investments for Asia at the wealth and investment management division of Barclays, said the bank had seen strong demand for loans for the purchase of homes in London over the past two to three years, fuelled by the weakness in the property market since the last global financial crisis.
He noted that while London’s property market had been strengthening of late, demand remained high among investors due to the returns they could realise from renting their properties, with the additional potential for capital appreciation over time.
“In today’s low interest rate environment, many Asian-based investors still see UK property as a good investment opportunity,” Mr Henning said. “Demand has been further supported where the home currencies of some of our client base has appreciated against sterling, such as in Singapore, where the Singapore dollar has appreciated by 20 per cent over the past three years,” he said.
In a recent report, real estate consultancy Jones Lang LaSalle also identified a growing breed of wealthy property investors whose purchasing decisions had been driven by familial and educational ties.
“Asian buyers like to educate their children in the UK and will often buy a property rather than rent,” said Ms Camilla Dell, Managing Partner of Black Brick Property Solutions. Her Asian client base has quadrupled in the past two years, she said.
Mr Henning said that while some clients might be buying for their children or for their personal use, most were “seizing the opportunity to buy mainly for investment purposes”.
Mr Sommerhalder concurred, saying: “Most believe that there is a limited supply of good quality properties in the prime locations and this will continue to drive up valuations.”
Source : Today – 7 Dec 2012