What's behind London's attraction to Asian property buyers

September 16, 2015 16:00
Mandy Wong says London has a comparatively strong taxation and political regime and a especially robust education market which has been fueling rental and buying demand. Photo: HKEJ

In times of turbulence, real estate is probably the most stable asset class.

In turn, the most stable real estate market is London, which probably has the most international investors.

That explains why it's one of the most popular choices for Hong Kong people.

London's residential prices have risen at least a 20 percent in the past three years.

In the southeast districts, the average residential price has gone up about 50 percent in the past six years.

Many Hong Kong buyers have ended up with a dual-purpose investment -- a British education for their children and a home.

In some cases, the increase in the value of their property has offset the cost of their children's education.

London was the top destination for Asian investors with an inflow of US$3.8 billion, followed by New York (US$3.7 billion) and Sydney (US$2.2 billion) during the first half, according to real estate group CBRE. 

London alone accounted for 20 percent of US$19 billion in Asian outbound investment in global real estate during the period.

Marc Giuffrida, executive director of CBRE global capital markets, said London remains the world's leading market for property investment.

It has received about 85 percent of all inflows to Britain this year.

"We are seeing investors taking advantage of positive sentiment in the leasing and capital markets by looking at value enhancement strategies and development," Giuffrida said.

Underlying the London residential market is an international financial and art center, whose demand has lagged supply.

Jones Lang LaSalle siad the uptrend is expected to continue this year after British Prime Minister David Cameron and his Conservative Party won a second term.

The property services company expects investors to get a 5 percent gross investment yield in the next three years as the psychological effect of value-added tax starts to fade.

National director for residential leasing Mandy Wong said the London property market is traditionally a good shelter for investment.

That's because London has a comparatively strong taxation and political system and a especially robust education market which has been fueling rental and buying demand.

A recent correction in the international financial market has not deterred new investors in the London property market.

She said buyers from Russia, China and the Middle East have not sold property below their purchase price.

“Compared with three years ago, the current property market is a little different," Wong said.

"The market has been up at least 20 per cent in the past three years. From a medium-term perspective, we can expect a gross rental yield of 4 per cent, depending on the location of the property.”

She said central London is a Chinese buyer's favorite but just like the high-end residential market, it offers only 1 percent to 2 percent yield but investors look for capital gains.

Jones Lang LaSalle data shows the average selling price of a London residential unit is 453,000 pounds (US$695,420), or about 4.5 times higher than that for the northeast region, and 2.6 times the average price nationwide.

Local buyers prefer units between 500,00 pounds and 600,000 pounds because at that range, the short supply will facilitate a rental increase of almost 10 percent per year.

London East is a district to watch because the Olympics areas such as Stratford, Greenwich and Canary Wharf will be linked by an 118-mile crossrail by 2018 which will cut travel time to Heathrow to just half an hour.

Jones Lang LaSalle expects half of London's population growth to come from the East in the next 20 years.

In the next decade, London's population is forecast to hit 9.6 million from the current 8.6 million, or about 13 percent of the total.

This growth will help expand the labor force by 15 percent to 6.3 million and propel GDP growth to 3.4 percent, higher than the national average of 2.6 percent.

An overseas buyer's stamp duty introduced at the beginning of the year (higher than that in Hong Kong) had an initial negative impact but it has since dissipated.

Wong said value-added tax in Britain is lower than those in Japan and Australia.

London remains attractive to overseas buyers because of its relatively simple taxation regime.

Like their counterparts in Hong Kong, buyers of London properties can sell pre-sale units before completion.

Moreover, global interest rates remain low, although a liftoff in the US could take place anytime soon.

Coupled with a cheaper British pound, the ultra low rates are driving buying sentiment in London's property market.

Ben Kwok contributed to this article.

[Chinese version中文版]

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