Hong Kong investors see Brexit as buying opportunity

April 01, 2019 10:21
According to a report from a British property developer, the City of London has been giving rental yields of between 4.5 and 5.5 percent. Photo: Reuters

The Brexit crisis has intensified almost every week recently, with neither the British government nor the parliament able to find a solution.

Amid this, I have been regularly receiving -- through the post, social media and newspapers -- advertisements for properties in the UK. Last Friday Apple Daily carried one for one- to three-bedroom apartments in Garden House in central London. It was placed by London landlord and letting agent Residential Land and its Hong Kong partner agency Centaline Property, which held an exhibition of the units at the Mandarin Oriental over the weekend (March 30-31).

“Invest in London for your future and be guaranteed,” it said. "In recent years, the Bank of England has followed a low-interest policy. Buying for rent has become an investment strategy for many British people and foreign investors. The biggest advantage of investing in London is to create an ideal study environment for the next generation and wait for a substantial return as your property increases in value.”

No mention of Brexit and what this means for the UK economy.

"For Hong Kong investors, Brexit is a buying opportunity,” said Richard Leung, a property agent. “Sterling has weakened and London property prices fell in the first quarter. The major cities in the UK – London, Edinburgh, Birmingham, Manchester, Oxford and Cambridge – will remain brand cities after Brexit. Foreign investors will continue to buy there. It is easy and convenient for them to do so.”

In 2018, according to estate agent Savills, London commercial property attracted US$26.9 billion of cross-border capital, almost two-thirds more than its closest rival New York City. The top investor in London property last year was Hong Kong, with 2.5 billion pounds, followed by South Korea with 2.3 billion.

The largest single deal was an office building, 5 Broadgate, in the City of London, that was bought by CK (Cheung Kong) Asset Holdings in June for US$1.3 billion. The London building, completed in 2015, generated a property return of 18 percent per annum for British Land. CK Asset first entered the UK property market in 1995 and has developed residential and commercial properties, including Royal Gate Kensington, Montevetro, Belgravia Place and Albion Riverside in London.

Asian capital accounted for nearly 40 percent of transactions in the Central London market last year, followed by British and European investors with 24 percent and 17 percent respectively.

Chris Harvey, head of UK real estate at Mayer Brown, said that, after the Brexit vote in June 2016, they saw a marked increase in investment from Hong Kong buyers.

"These range from high net worth individuals to family businesses and listed companies controlled by wealthy families and their private money. They sought to take advantage of the weak pound and comparatively attractive yields and have maintained confidence in the long-term health of the UK economy,” he said.

Other factors that make the UK attractive are that many Hong Kong people have lived, worked or studied there, giving them friends, links and a familiarity they do not have with France, Germany or other EU countries. English is the main foreign language of HK people. Many choose universities in the UK to educate their children.

The market is liquid, transparent and governed by law. Asian investors are less sensitive to the intricacies of Brexit and see the UK as a safe haven. They believe London will retain its place as a world center for trade and investment long after Brexit.

Successive governments, whether Labour or Conservative, have welcomed foreign investment in the property market and put no significant hurdles in the way of it.

In addition, the fall in sterling has increased return on UK assets for overseas investors, especially those who have funding in US dollars.

A report by London property firm Galliard Homes said the City of London was giving rental yields of between 4.5 and 5.5 percent. “This emphasises its location as a choice investment opportunity. Furthermore, demand for rental locations has never been higher, particularly within the City of London whilst supply is running low,” it said. Those yields are higher than Hong Kong, Paris and Frankfurt.

The darkest cloud on the horizon for foreign investors, including those from Hong Kong, is the possibility of a Labour government led by Jeremy Corbyn. He is the most left-wing head of the party for more than 20 years.

His party has discussed a “mansion tax” on high-value homes. It has promised higher taxes overall to raise money for health, education and other social services. Corbyn and his colleagues talk often about the unequal distribution of wealth and the need to change this.

But even if the Brexit crisis leads to a general election, it is not certain that Labour would win it. The party is just as divided as the Conservatives over the issue. Given all this, Hong Kong investors should keep their check books open when they visit London.

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A Hong Kong-based writer, teacher and speaker.