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.”

By Shelley Emling

LONDON — A three-bedroom, 2,300-square-foot apartment recently went on the market in London’s fashionable Eaton Square and an Italian buyer immediately snapped it up for £5.65 million — a surprisingly quick sale in what has been a flat market.

But real estate agents say the lightning-fast $9 million purchase is representative of what has been happening in the top-end property market in London, which has long laid claim to the most expensive residences in the world: The euro’s strength against the pound is bolstering interest among buyers from Europe, perhaps the only bright spot in an otherwise unspectacular British housing market.

“Unless there is a drastic shift in currency values, foreign buyers will continue buying prime London property,” said Charles McDowell, a London property consultant who specializes in properties priced at £5 million or more.

Even so, the London market remains as perilous as ever, with many agents saying that they do not expect a full recovery until 2011— and that the 5 percent to 6 percent rise in prices in 2009 was the result of a lack of stock rather than proof the market was getting better.

The inventory of property for sale is 20 percent smaller than it was a year ago, while a weak pound has spurred a 45 percent jump in prospective buyers from overseas, according to Knight Frank in London.

“In terms of future growth, we see 2011 as being the year of big growth for London and Southern England — and 2012 for the rest of the U.K.,” said Liam Bailey, head of residential research at the Knight Frank agency.

In addition to unemployment, Mr. Bailey said that the twin issues of inflation and future finance costs — coupled with a nasty combination of spiraling government debt and the resulting tax rises and spending cuts — are the greatest causes for concern.

But from 2012, a broader economic revival, fueled by growing employment and the hype surrounding the London Olympics that are to be held that summer, should help to underpin a real recovery in household income and house prices. But, Mr. Bailey added, the residential market is expected to continue to be uncertain in many parts of the country and negative equity would continue to provide a drag on activity levels through 2011.

For 2010, Mr. Bailey predicted that prices overall would not fall more than around 3 percent.

Camilla Dell, manager/partner at Black Brick Property Solutions in London, said that property price fluctuations in the next few years would depend on unemployment, interest rates and mortgage availability.

“Once interest rates start to go back up, it is likely we may see a large number of properties come onto the market in London, and this could put a stop to the recent price rises we have seen over the last few months,” she said.

For years London was home to an overheated property market, a city where high-end properties could command as much as $5,860 a square foot.

But the global recession battered the property market early in 2009 and it has only rebounded somewhat in recent months — prices in some parts of London are up by as much as 6 percent — mostly because of the weak pound and interest among foreign buyers.

“Up to 80 percent of the purchasers we have been dealing with throughout 2009 do not come from the usual home marketplace — people upgrading or downgrading their main residence,” said Gary Hersham, director at Beauchamp Estates in London. “Most of the British purchasers tend to be investing rather than moving home, and probably more than 50 percent of our purchasers are foreign, particularly those from the euro zone wishing to cash in on the extremely favorable exchange rates.”

James Bailey, head of sales at Henry & James estate agents in London, said that European buyers are enjoying a 35 percent discount on 2007 prices. “We are seeing Europeans buying in the £1 million to £2 million range, mainly as a pied-à-terre for themselves or as a rental investment,” Mr. Bailey said. “With interest rates so low, investors are opting to put money into bricks and mortar rather than into savings and London has always represented a sound investment.”

Martin Bikhit, managing director at the real estate agency Kay & Co. in London, said that he, too, has witnessed a spike in interest from overseas investors who want to take advantage of the weak pound and lower capital values.

“In some cases savings of up to 50 percent were made when compared to what an identical property would have coast 12 months ago,” he said.

But Louise Hewlett, managing director at Aylesford International real estate in London, said the higher house prices in recent months have given the false impression that the market is healthy.

“Mortgages have remained at their lowest level for over two decades, which has resulted in fewer properties coming to the market, and it is the shortage of supply that has given the rather false impression of a buoyant market,” she said.

Mr. McDowell, the London property consultant, said that tax increases for Britons and expatriate residents could prompt more wealthy property owners to decamp to Switzerland or elsewhere, putting more properties on the market for sale.

But, he added, fleeing Britain seems a rather drastic move with an election on the horizon.

Still clawing out of a recession, the government has increased its top income tax rate to 50 percent, a higher-than-anticipated levy on annual income earned in Britain of £150,000 or more.

But if the Conservatives win the election, which Prime Minister Gordon Brown must call no later than June 2010, those tax increases may be short-lived.

Amid a troubled real estate market, Mr. McDowell has spotted one trend: More buyers are financing — or refinancing — their major property purchases.

“In the last six months,” he said, “two thirds of our transactions over £5 million have been financed, a far higher percentage than would have been purchased with mortgage financing in previous years. There used to be an image issue and it was thought that people who borrowed to buy didn’t have deep enough pockets.

He continued: “Now clients are very keen to hang onto their money and borrow to buy. They want to stay liquid.”