By LEE BOYCE
Chinese, Malaysian and other Far Eastern investors are spreading their wings outside the traditional London hotspot and driving demand for new build investment properties across Britain, according to a new report.
Buy-to-let specialist by Assetz.says that investors are being captivated by strong yields and the opportunity to take advantage of a weak pound – which has performed badly against Asian currencies since the New Year.
Assetz says that seven years ago, there were near enough zero transactions to Chinese and Far Eastern investors, but they now account for nearly 10 per cent of its investor purchases.
It comes as the property market in Beijing, Shanghai and other leading Chinese cities has ‘overheated’ in recent years, according to the firm. It says a chronic oversupply of property there driving down rents with an average gross yield of just three per cent.
The Chinese, for example, are allowed to move $50,000(US) ($100,000 for a couple) out of the country each year – enough to put down a deposit for a mortgage on a good quality property.
Wealthy Chinese and Far Eastern investors like the stability, democracy and solid land titles that Britain offers, as well as feeling that owning property here carries kudos and offers a prime opportunity to educate their children in the English-speaking world. They are also keen to store some of their riches outside of their homeland.
As a property investment firm, Assetz is obviously keen to publicise its claimed trend. But it backs its figures up by saying it handles around five per cent of all residential investment property purchases in the North and estimates there have been in the region of 2,000 buy-to-let properties sold to Far Eastern investors in the North last year.
Many are attracted to the strength of the UK rental sector. Assetz say investors can benefit from yields in the region of eight per cent.
According to latest Census figures, the proportion of British households renting has increased in the past decade from 31 per cent to 36 per cent. Average monthly rents have risen by roughly 15 per cent, or £100, in just three years.
Why are overseas investors heading out of London
Assetz says Far Eastern investors are seeking higher income opportunities in regional UK cities such as Leeds, Liverpool, Manchester and Sheffield.
These are mainly new-build apartments, which Far Eastern investors have a preference for, and tend to be in far more plentiful supply than in London. They are also much cheaper, making an investment accessible to those lower down the wealth scale.
Typically, Central London has been the prime location to buy property – but Assetz says cooling price growth in recent months and lower yields are making it less attractive.
The Chinese capital, Beijing, is offering weak yields but still delivering annual price rises in the region of 10 per cent – far faster growth than in the UK.
As such, Assetz says that there is little motive for Far Eastern investors to buy property in London for capital growth.
Stuart Law, chief executive of Assetz, says: ‘Interest in London as an investment destination is moderating a little for Far Eastern investors, offering them kudos and slowing capital growth, but very little in the way of a yield return.
‘The higher yields of the UK’s regional cities are a big draw, particularly new developments targeted at young professional tenants. Many investors have children studying at British universities and are keen to put down roots in the country.’
The Bank of China is offering sterling mortgages to Chinese investors, usually at 60-70 per cent Loan-to-Value (LTV).
But London is the default choice for Far Eastern investors
In the past few years, there has been a sharp increase of Far Eastern investors taking advantage of beneficial exchange rates and the relative security of prime London real estate, according to buy-to-let specialist London Central Portfolio (LCP).
It says that buyers from the Far East make up almost 40 per cent of its clientele and recent changes in taxation on non-resident investors in local markets mean more are turning to the UK for investment. It’s becoming a more and more appealing prospect.
Singapore and Hong Kong, for example, have both recently raised property taxes significantly.
FAR EASTERN INVESTORS THE TARGETS OF SCAMS
Just after the Olympic bid was announced, a potential client of LCP was sold a property advertised as near an Olympic training facility and not far from Central London.
It was only after she bought the house that she discovered the truth.
The property was not only outside London but it was not even in England, being located near a training ground in Cardiff.
An extreme case, but unfortunately, it seems she is not the only one.
Many potential investors have been drawn in by the multitude of exhibitions in the Far East.
They are convinced into putting money down on the spot, having been enticed by promises such as a new development within 15 minutes of Harrods. In actual fact, the development is in Zone Five, and the 15 minutes is actually ‘helicopter flight time’.
Singapore has raised Stamp Duty on foreign and corporate buyers from 10 per cent to 15 per cent, only a year after it was first introduced.
In Hong Kong, taxes are even higher. In order to contain rising prices fuelled by rampant speculation and the influx of foreign investors, particularly from the Chinese mainland, the Government has implemented a Special seller’s Stamp Duty of up to 20 per cent on the sale of short term owned properties.
In addition they are introducing a 15 per cent buyer’s Stamp Duty on local and non-local companies.
This means the Chinese are becoming locked out of these closer-to-home markets and now many see more value in London property.
Education is another major factor. London’s reputation for top quality education has resulted in 15 per cent of Chinese overseas students coming to the UK – and according to research, 82 per cent of affluent Chinese families are now planning to send their children to study overseas.
With three of the top 10 world universities situated close to London, this is a clear focus point and drives a desire for prime real estate, alongside.
Focus is also turning more and more to other areas of the capital from these buyers, according to LCP. It says investors are becoming far more sophisticated as they realise there is an extensive over supply of new builds in areas such as Canary Wharf.
Since 2000, 30,000 new units have been developed, in stark contrast to the 500 or so units developed in Central London, resulting in prices at just one third of those in the heart of the capital.
What is making properties attractive in the UK for Far East investors?
Naomi Heaton, chief executive of LCP, says: ‘To answer this question, a clear distinction needs to be made between all of the UK’s micro-markets. Leeds, Devon, Scotland, London and, indeed, Central London, are completely different markets which are wholly uncorrelated.
‘Central London is the hive for foreign investment activity, with international investors representing over 60 per cent of the total buying population. It is a financial centre, an international playground and a ‘go to’ destination for the brand conscious.
‘It is arguably the greatest city in the world with probably the lowest availability of property to buy, due to the conservation of its architectural heritage and almost zero land development potential. Prices are fuelled by growth in global demand, combined with diminishing availability.’
According to data, Central London is also an educational hotspot. In the City of Westminster alone, there are 75-100,000 students, which equates to one quarter of all the international students who come to the UK each year.
To put this in context, the resident population of Westminster is just over 250,000.
Over the last 16 years, prices in Central London postcodes have increased six-fold from £221,679 to £1.36m, according to HM Land Registry, outstripping returns from most other Asian markets.
Naomi Heaton adds: ‘While yields have cooled slightly, they reflect both diminished returns across all asset classes and the low cost of borrowing, meaning that they are set to harden when interest rates rise.
‘Whilst overseas investors may be tempted by high yields outside London, capital upside is far less likely and total returns will be considerably less, with much higher risk.’
Lack of volatility is another reason why foreign investors may pour money into London property. To understand this you have to look outside Britain and to the other alternative destination cities for global property investors.
Singapore’s performance is lagging well behind other mature markets and Manhattan’s price growth has all but flat-lined, Hong Kong is the only major player to match prime Central London price growth over the longer term.
Prices in Hong Kong are up 191 per cent since 2000 compared to 182 per cent in prime Central London.
However, the market is exceptionally volatile bringing with it lucky winners and desperate losers.
Both Hong Kong and Singapore’s housing markets react dramatically in times of economic uncertainty and they saw prices plummet 56 per cent and 72 per cent respectively in one year, during the credit crunch. This compares with just 11 per cent in Central London.