Boris Johnson win attracts more HK buyers to UK property

Mark O'Neill December 19, 2019 08:00

The resounding victory of Boris Johnson’s Conservative Party in last Thursday’s general election will make British property more attractive to Hong Kong investors.

The Conservatives won 365 seats in the 650-seat Parliament, giving them a majority of nearly 80 seats over the other parties combined. After the previous election in June 2017, the Conservatives did not have an overall majority and so were unable to pass their bills to leave the European Union.

Shortly after his victory, Johnson announced that he would submit his Withdrawal Bill to Parliament. His majority will enable him to pass it and take the UK out of the EU by Jan. 31, 2020.

This is good news for investors, domestic and foreign. It removes an element of political uncertainty that has been hanging over the economy since the Brexit referendum in June 2016. After the victory became clear on Thursday night, the pound rose to US$1.35 and stocks rose.

But, on Tuesday, Johnson introduced a new element of uncertainty by saying that Britain must conclude negotiations on a trade deal by the end of 2020, despite the objections of the EU to such a tight deadline. Parliament will legislate against extending the transition period beyond December 2020.

Where does all this leave Hong Kong investors? Britain has long been a favorite destination for Hong Kong people. Individuals buy residential properties and companies commercial ones. The interest has intensified since the anti-government protests began in June.

The newspapers have been full of advertisements for properties not only in London but also in provincial cities like Birmingham, Manchester, Liverpool and Edinburgh, where prices are significantly cheaper than in the capital.

On Dec. 12, Lai Sun Development (00488.HK) announced that it had acquired a 50 percent stake in the 211-room Fairmont St Andrews, a luxury hotel and golf resort in Scotland. It is close to the Old Course, where the game of golf originated; it will host the 150th Open tournament in 2021. The asking price for the resort was 35 million pounds (US$45.89 million).

So far this year, Hong Kong investors have spent US$82 million on real estate in Scotland, including offices, hotel, flats and homes for the elderly.

Platinum Rise Capital Partners, a private equity firm based in Hong Kong, is developing two projects in Liverpool and one in Manchester.

Flat prices start at 98,500 pounds for the two in Liverpool and at 127,500 pounds for the one in Manchester. Foreigners account for half of the buyers, including those from Hong Kong and Singapore.

The average price of an apartment in Manchester is HK$2.3 million, a third of that in London, with the average in Liverpool cheaper still.

From 2017 to December this year, foreign investment in Manchester and Liverpool property was US$5.44 billion, of which US$103 million came from Hong Kong.

MyLondonHome, an estate agent, said that, during the past four months, the number of Hong Kong buyers in London had increased, with many seeking homes in the range of one million to 2.5 million pounds.

It said that the political crisis in Hong Kong was driving people to look for a safe haven, both to have a property abroad where they could move at short notice and also to get their funds out.

Since the Brexit referendum, HK buyers have benefited from cheaper prices because of the weaker sterling and political uncertainty. Now the calculation has changed.

A majority of the British public are delighted at the prospect of leaving the EU. That is why they voted to “Get Brexit Done”, Johnson’s campaign slogan.

But the business community and financial markets are more ambiguous. They want a "soft" Brexit that can, if possible, keep Britain within the EU single market and customs union. With Johnson’s end-2020 deadline, this now seems unlikely.

“This is a high-risk strategy,” said the Financial Times in an editorial. “Both Britain and the EU will surely suffer if the UK reverts to trading on WTO terms. The UK will be hurt more. It will be hard to cover the vast number of issues the two sides face in only one year.”

Manufacturers who import many of their parts and components from the EU fear for their profits and efficiency if they have to pay tariffs on imports and exports.

Other difficult issues are state aid and competition rules, as well as commitments on labor rights, taxes and the environment. The EU does not want Britain to diverge too far from its own rules.

So Hong Kong investors must include this new uncertainty in their calculations. One Brexit hurdle will be cleared on Jan. 31, but another one is waiting for the end of next year. Investors must time their purchases carefully to take advantage of these factors.

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RT/CG

Mark O'Neill

A Hong Kong-based writer, teacher and speaker.