By Sonia Kolesnikov-Jessop
As more wealthy Asians seek to buy property overseas as an investment or short-term residence, their private bankers are only too happy to help. The wealth management divisions of banks are reporting a 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 in accordance with the borrower’s credit profile.
“Many wealthy people may want to maintain their liquidity rather than just applying it to the real estate assets, as liquidity allows them to take advantage of investment or business opportunities that may arise,” said Michelle Tan, head of real estate product management at Bank of Singapore.
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 Yves-Alain Sommerhalder, head of ultrahigh-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 smartly in recent years against Western ones like the U.S. dollar and the British pound.
The currency play is important, since about 57 percent of wealthy investors named London as their top target market for property purchases, according to a survey published this year by the real estate agency Cluttons and the consulting firm VPC Asia Pacific.
Investors surveyed in Kuala Lumpur and Singapore identified the central London residential market as their primary target for offshore investments, while wealthy investors in Bangkok ranked London behind Yangon, Myanmar, and wealthy Indonesians placed London in third position, after Singapore and Australia.
Bryan Henning, head of global research and investments for Asia at the wealth and investment management division of Barclays, said the private bank had seen strong demand for loans for the purchase of homes in London over the past two to three years, fueled by the weakness in the property market since the last global financial crisis. He noted that while the property market in London had been strengthening of late, demand remained high among investors because of the returns they could realize 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 U.K. property as a good investment opportunity,” Mr. Henning said. “This 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 percent over the past three years,” he said.
The bank has also seen increased interest in investment in properties in Australia and New York, “where clients are often interested in potential returns and also in purchasing homes for use by their children who may be looking at attending university overseas, or even as potential retirement locations.”
The top destinations in the world for international students are also attracting demand for both residential and commercial properties.
In a recent report, the real estate consultants Jones Lang LaSalle 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 U.K. and will often buy a property rather than rent,” said Camilla Dell, managing partner of Black Brick Property Solutions, an independent buying agency in London. Her Asian client base has quadrupled in the past two years alone and now represents about 20 percent of the total, she said.
The properties she has helped clients buy were priced at over £1 million, or $1.6 million, on average and were in central London. These buyers, she added, are typically looking for two-bedroom apartments close to universities and tend to prefer newly built, modern buildings with onsite concierges. “Property is viewed as a safe haven, and the weakness in sterling against Asian currencies is also a key driver,” Ms. Dell said.
Martin Bikhit, managing director of Kay & Co., a real estate agent specializing in London’s West End, has also witnessed an increase in Asian buyers. “Our inquiry levels have probably doubled over the past two years and we have sold apartments to no less than 15 buyers in the past 12 months,” he said.
Mr. Henning of Barclays said the bank’s clients were buying both residential and commercial properties in London, and mainly residential properties in New York and Australia. He added that while some clients might be buying for either their personal use or for their children, most of them were “seizing the opportunity to buy mainly for investment purposes.”
Mr. Sommerhalder concurred. “Most believe that there is a limited supply of good quality properties in the prime locations and this will continue to drive up valuations,” he said.
But while wealthy investors may be interested in property as a pure investment, they are not speculating — at least not with their bank’s money. Wealth managers emphasized that the banks were writing loans only for the purchase of completed properties, as the risks inherent to providing loans to properties not yet completed were deemed too high to underwrite in most cases.
Private banks tend to stick to lending against completed properties in areas where there is a track record on rental income, said Mr. Henning, of Barclays.
While term loans get fully disbursed on one date and interest accrues immediately, revolving loans are more flexible — and less binding than a classic mortgage agreement, said Ms. Tan, at Bank of Singapore. “The client may use a revolving loan as a standby facility which will only be used when investment opportunities are found,” she explained. “So if there are no investment opportunities, the line stays undrawn and will not incur interest charges.”