Hong Kong investors snap up older properties in London hotspots

Hong Kong investors snap up older properties in London hotspots

Wealthy Hongkongers are among those buying to renovate and rent, or sell on to other Asians

Wealthy Hong Kong and mainland Chinese property investors are snapping up homes in London’s second-hand market, buying multiple properties to improve, rent out, and sell on to other Asian buyers.

Guy Meacock, director at buyers’ agency Prime Purchase, has helped a Chinese businesswoman buy seven central London properties. She has bought multimillion-pound flats with two or three bedrooms in London’s most expensive boroughs – Westminster, and Kensington and Chelsea.

She buys Victorian homes mostly because they are better located than the majority of new developments, and where necessary she puts in new kitchens and bathrooms and makes other improvements, said Meacock.

Older properties tended to more popular with Britons and Europeans, the biggest source of demand in the resales and lettings markets.

Research by property consultancy Knight Frank shows most types of older property in Britain are sold at a premium. Georgian houses command 25 per cent over the price of the average house, whereas flats and houses built in the second half of the 20th century are typically 15 per cent less valuable than the average.

Meacock’s biggest client invested across the two boroughs, including the Bloomsbury and Marylebone districts, where home prices may be boosted by Crossrail, a commuter line that will connect them and other parts of central London with towns east and west of the British capital when it opens in 2018.

Property consultancy GVA forecasts Crossrail will add £5.5 billion (HK$66 billion) to residential and commercial property values in locations along its route.

Meacock’s client is banking on anticipated future capital appreciation to make a profit, not rental yields, which are only between 3 and 4 per cent in central London, according to Knight Frank. Older properties tend to require regular maintenance, which eats into returns.

Buyers’ agency Black Brick is helping a Hong Kong entrepreneur find blocks of apartments valued at between £5 million and £10 million in Kensington and Chelsea. The cash buyer will either rent them out or refurbish them and re-sell to buyers in Asia.

Hong Kong investors must pay income tax on rental income, but no capital gains tax when they sell a property.

Robert Hadfield, managing director of investment property management company Pineflat, said there was merit in the approach taken by the investors if they wanted to build up a store of value, because there was a finite number of period homes available to own and tenant demand was holding up strongly.

But the strategy was speculative, said Hadfield, if it did not take into account income stream and was based on reselling already overpriced property at a higher price later on.

Buyers from Arab countries hit by unrest snap up London ‘boltholes’

By Richard Warrem

Arab businessmen, some connected with Middle Eastern regimes toppled by popular uprisings in January and last month, are buying London “boltholes”.

London estate agents Kay & Co has sold two homes to Middle Eastern businessmen since a popular revolt in Tunisia triggered anti-government uprisings across the Middle East.

“One purchased on our recommendation without viewing,” managing director Martin Bikhit said.
His firm had received 17 enquiries from Arab buyers, including eight from Egypt, since the unrest started. They were looking for central London homes in the £4 million (HK$50.6 million) to £20 million range. ”

Bikhit said buyers were “mainly wealthy businessmen, all of whom will have had a loose association with the former regime but not necessarily an intimate one. They are mainly looking for `London bases’, but given the size of some of the homes being sought, we feel that these individuals are looking at spending more time in the UK than before, with some admitting they are trading up from smaller homes they already own.”

The buyers were mainly interested in purchasing homes in the districts of Mayfair, Knightsbridge, Kensington and Bayswater, Bikhit said.

Central London property search company Black Brick has helped Arab purchasers complete deals on two homes since the unrest began.

Camilla Dell, Managing Partner of Black Brick, said her company had received six enquiries from Middle Eastern buyers, which was higher than usual for the time of year.
The buyers included Saudi Arabians, Lebanese, Egyptians and Bahrainis. Budgets ranged from £500,000 to £20 million, Dell said. “We anticipate enquiry levels will get higher as the year goes on,” she said, “It’s slightly early days at the moment.”

London buyers agency Property Hunt had received 10 enquiries from Middle Eastern clients. The company’s managing director, Russell Hunt, said this level of interest was “far more than normal. People from the Middle East are gauging what and where to invest in London as it is seen as a safe market, or looking for somewhere for them and their families to use in case there is further unrest – in other words, a London bolthole”.

Howard Elston, associate director at Aylesford International, said growing demand for London homes from wealthy Arabs could mean sales prices increase. “I am sure it will add another pressure on the price of prime property in London, but I think it will not be seen overnight,” he said.

End of a golden era:

By Richard Warren

Home values plummet throughout the country as mortgages dry up, with only London’s high-end real estate escaping the trend

A mortgage lending squeeze will result in property prices falling across Britain, but London’s most desirable residential districts will be least affected, analysts say.

Net mortgage lending in Britain has fallen 90 per cent in three years. The gap between new loans and repayments will narrow to £10 billion (HK$123.8 billion) this year compared with £100 billion in 2007, the Council of Mortgage Lenders (CML) reports. The body warns there could be negative net lending – more mortgages repaid than loaned – next year because the number of new mortgages is shrinking.

Many lenders have withdrawn from the home loans market. The CML was unable to complete this year’s top 30 mortgage lenders’ table because there are only six principal lenders now.

Investors, the self-employed and first-time buyers struggle most to get a mortgage – they must put down larger deposits than before the credit crunch and have fewer mortgages from which to choose.

Hong Kong and other overseas buyers must go through more credit checks, put down larger deposits and contend with frequently changing lending rules when dealing with High Street banks.

“The golden age of home ownership is over, for the moment,” Michael Coogan, the CML’s director general, told a housing conference last month. “Mortgage rationing has limited activity and left pent-up borrower demand unfulfilled since 2007.”

The CML believes the Financial Services Authority’s (FSA) proposals to regulate interest-only mortgages will make mortgages scarcer. In an interest-only mortgage scheme, a borrower pays interest on a monthly basis and repays the principal after a specified period, usually 25 years.

The CML warns interest-only schemes could “vanish” if the FSA’s proposals are implemented. Fearing the FSA’s proposals will increase costs, lenders are withdrawing interest-only loans from the market and considering forcing customers to convert to capital repayment mortgages. In a capital repayment mortgage scheme, part of the principal is repaid each month with interest payments.

At present, two-thirds of new mortgages are interest-only, which the FSA believes encourages homebuyers to borrow more than they can afford to repay.

Liam Bailey, head of residential research at property consultancy Knight Frank, says Britain’s housing market will go into a double-dip downturn if interest-only mortgages are withdrawn.

“There is no doubt that prices would fall, and access to the market would be constrained,” Bailey says. “There [is] a huge range of borrowers who use interest-only mortgages as a legitimate method of accessing the market, [such as] older borrowers, and self-employed [people].

“The most concerning issue is that lenders are now looking at taking existing interest-only borrowers off interest-only arrangements. This would be damaging and would threaten the sustainability of [many] current borrowers’ finances.”

The FSA also wants to ban self-certified mortgages – which limit checks on information borrowers give about their financial status, and are thus considered open to fraud. Banning them would reduce the number of loans issued, especially to self-employed people, the CML says. Banks are cutting mortgage lending regardless of official intervention. They are withdrawing from the buy-to-let loans sector. Landlords will welcome the news that Paragon Mortgages, the specialist buy-to-let lender that suspended operations during the credit crunch, has resumed lending.

From next year, British banks will have less money available for mortgage lending because they must begin repaying £300 billion of funding provided by the government during the credit crunch.

Prime central London residential markets, such as Knightsbridge, Mayfair and Chelsea, are likely to be less affected by mortgage cuts than Britain’s mainstream housing sector because wealthy buyers rely less on borrowing.

Camilla Dell, managing director of Black Brick, a buyers’ agency that specialises in prime central London, says many purchasers in the area pay cash. “Twenty-five per cent of our clients are cash buyers,” Dell says. “Well over 50 per cent could buy in cash if they wanted to. Even if they do decide to take finance, many of these international buyers are high-net-worth individuals and therefore banks are happy to lend to them.”

Prime central London’s housing sector is performing better than the market nationally. According to the Land Registry, prices were 12.7 per cent higher in the Royal Borough of Kensington and Chelsea in August compared with the previous year. Nationally, they were 6.7 per cent higher.

Bailey says the dislocation between prime central London’s housing market and the rest of Britain is sustainable.

“This is due not only to greater wealth inequality in the UK, which has happened despite the recession, but also the fact that international buyers concentrate their activities in London, adding hugely to demand and price pressures here,” Bailey says.

In prime central London, half of homebuyers come from overseas, Knight Frank’s research shows. Hongkongers and mainlanders comprise the largest group of overseas investors in central London’s new-build market, making 5 per cent of purchases, the agency reports.

Prime central London is likely to be less affected by public sector cuts than mainstream Britain because most of the residents work in the private sector, including financial services firms which are expanding.

“There has been a lot of positive news coming from the city [financial sector] and many management consultancy firms are recruiting in large numbers,” Dell says. “It would take another mega global financial crisis to see a repeat of the 2008 price falls we saw after Lehman Brothers collapsed.”

Dell forecasts prices will stay flat in prime central London over the next 12 to 18 months.

Foreigners pounce on top homes in London

By Richard Warren in London

Weaker pound fuels rush from overseas

The number of nationalities buying property in London has risen by two-thirds since 2008. The pound’s weakness enabled buyers from 51 nations to buy property in the British capital in June. Chinese and Vietnamese are among the new investors.

According to the Knight Frank London Residential Review, half the homebuyers in prime central
London, which encompasses districts such as Kensington, Chelsea and Mayfair, are from overseas. The report says 51 nationalities bought property in these areas in June, compared with 30 in mid-2008.

Foreign buyers are making their presence felt at the most expensive end of the market. They account for 68 per cent of buyers of homes valued at £5 million (HK$61.95 million) or more, the report reveals.

Their strong appetite for multimillion-pound homes means they make up more than 60 per cent of buyers in Mayfair, Knightsbridge and Hampstead.

Liam Bailey, the head of residential research at Knight Frank, said investment by foreigners had helped prime London home prices rise 20 per cent over the past 12 months.
Hong Kong buyers are the most prominent in Wapping, Canary Wharf and the Hyde Park Estate, and they account for 2.3 per cent of all international buyers, the report shows.

Buyers from Russia form the biggest group at 14 per cent, while 11 per cent are from the United States.

Ed Lewis, the head of London new homes at estate agent Savills, said all brand-new, £5 million homes sold by the firm in London’s prime districts this year went to overseas buyers.

“International buyers continue to exploit the opportunity that the cheap pound offers across the capital,” Lewis said. “In the past month, we have had to polish our linguistic skills in, among others, Mandarin, Vietnamese and Afrikaans.”

The pound fell 28 per cent against the Hong Kong dollar between March 2008 and June this year. It has recorded similar falls against other currencies, including the US dollar and the Saudi riyal.

Camilla Dell, the managing partner of Black Brick Property Solutions, said international buyers were attracted to London’s reputation as a safe haven and its educational establishments for their children.

“We have clients from Nigeria, Ghana, Uganda, Kenya, South Africa, Zambia, Russia, India, Pakistan, Malaysia, Singapore, Hong Kong, Greece, Cyprus, Italy, Saudi Arabia, Dubai, Egypt, Lebanon, the US and Australia,” she said. “At the moment, London is particularly popular with those from India and the rest of Asia, where there is a fast-growing high-net-worth contingent and there are strong historical links with Britain.”

Dell said the large overseas influx meant demand outstripped supply in many districts and would support prices in a market downturn.

Adam Blaskey, a director of developer Northbeach, said all interest in its Kensington project, 3 Queens Gate Place, where it is marketing five flats, had come from overseas.

“Through our website, we have traced this interest back to over 50 countries around the world, with the Far East and the Middle East dominating,” he said.

Non-Britons, especially Russians, dominate demand for apartments at One Hyde Park, the Candy & Candy development in Knightsbridge, where sales prices reached £28 million in April.

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Prime time in London

By Richard Warren, Property Supplement

A surge in the capital’s prime central housing market is driven by overseas buyers taking advantage of the weak pound and low prices

A strong recovery in prime central London’s housing market over the past six months has taken even the most optimistic observers by surprise. Prices are now 6 per cent higher in London than in March, figures from estate agency Knight Frank show.

This rise has been helped by a 1.3 per cent increase in September, the company’s latest research reveals.

Overseas investors have flocked to London since the spring when prices were 50 per cent below their late 2007 peak in US dollar terms. Buyers include mainlanders, British expatriates and Chinese buyers from Hong Kong, as well as buyers from other countries in the Asia-Pacific.

“We have seen stabilisation of values probably as far back as March this year, along with increased purchaser activity,” says Peter Murray, a partner at agent King Sturge in London. “A lot of international money is coming into central London, taking advantage of the decline in values and the currency swing.”

Liam Bailey, head of residential research at Knight Frank, says values have risen most strongly in the prime central London districts of Kensington, Chelsea and Notting Hill – up 9 per cent since March.

Price rises have rippled out to other parts of London, including prime areas of Richmond and Islington.

“Prices have done much better than people expected, because there isn’t much stock in the market and buyers have come back because they’ve felt confident, thinking that London’s economy is beginning to turn round,” Bailey says. “The weak pound has encouraged overseas buyers to come back into the market and the feeling that prices were over-discounted in March this year.”

Bailey says half of buyers for properties valued at £2.5 million (HK$27.5 million) or more were from overseas during the summer months. About 4 per cent of all buyers came from Hong Kong and the mainland, he adds. “European, [Middle Eastern] and even American buyers are very prominent. Hong Kong buyers tend to be more noticeable among investment purchasers.”

Murray explains that King Sturge has seen a lot of interest from the Asia-Pacific region recently, not just from Hong Kong.

“This region has consistently been buying UK properties, in good times and bad, and one of the motivators is buying for investment or buying as a base for their children who are studying in London.”

Bailey says that a continuous lack of supply coupled with strong overseas interest will support prices over the next 12 months. After a quiet period in the market during the autumn, he says prices may edge up 5 per cent next year.

“The lack of properties available to buy in the market means it is going to feel quite subdued over next few months. We will have to wait for [next] spring when we are hoping to get more properties back into the market.”

After forecasting a recovery in the prime central London market last spring, Camilla Dell, managing director of buyer agency Black Brick, is uncertain it can be sustained.

Much of the increase in buying activity during the spring and summer was fuelled by the release of pent-up demand from cash-rich Britons living in rented accommodation who want a home of their own, she says.

“We are slightly surprised that the numbers are what they are, that we have had 6 per cent price growth,” she says. “We are hesitant to say this signals a recovery. If we see a lot more supply coming onto the market then we won’t see this level of growth continue.”

She thinks that the national property market may suffer over the next year or so if the economy worsens, but that prime central London’s housing sector may be less affected.

“In the second quarter of 2010, unemployment is expected to peak at 3 million, so we may see price falls,” she says. “But London is a different animal to the rest of Britain. It will always attract international investors and buyers.”

Dell advises buyers not to delay making a purchase in the expectation that prices may fall again.

“If you can find the right property at a good price then it is worth doing,” she says. “Buyers become too obsessed with price. Buying property in London ought to be seen as a long-term thing because it has a proven track record of attracting international investment.”

London’s biggest private landlord, Bruce Ritchie, chief executive of Residential Land, which owns 1,000 homes in London, is confident London’s best addresses will ride out any economic turbulence. He expects investment returns to rise over the next year or two, especially for the best quality homes.

“For a yielding asset the path is only upwards from its current lows,” Ritchie says.

Greenwich Creekside, with close proximity to Canary Wharf and direct links into the city, will be released in Hong Kong shortly by King Sturge.

“It’s a good quality, well specified development in a very good residential area,” Murray explains.

“Apartments will command views of the river, city skyline and Canary Wharf.”

There is a selection of one, two and three bedroom apartments ranging from 500 sqft to 1,500 sqft. “I expect prices will start from about £220,000 for a one-bedroom apartment.”

Big houses on sale include, 23 Cadogan Place, a £26 million city mansion marketed by Savills. This Knightsbridge property has five bedrooms, cinema room, swimming pool, staff accommodation and four terraces.

Islington’s emerging prime market was lifted by the official opening of Highbury Square on September 24. The site, the former Highbury stadium of Arsenal Football Club, was redesigned as 650 apartments and penthouses, and will be completed later this year. Eighty flats remain unsold with prices for a two-bedroom penthouse starting at £995,000. The sales agent is Savills.

In Paultons Square, Chelsea, a four bedroom, two bathroom period townhouse with several reception rooms, home cinema and garden is on the market through Knight Frank for £7.25 million.

At the Barbican in the City of London, former commercial premises have been converted into Frobisher Crescent, a set of 69 apartments, with a three-bed home costing £1.875 million.

HK buyers join bargain hunters in London

By Richard Warren in London

London home sellers are accepting offers of up to 30 per cent below their asking prices, and Hong Kong buyers are among those taking advantage of the deep discounts and the added attraction of a collapse in the value of the British pound.

Camilla Dell, the managing director of property search company Black Brick, said bargain hunters were demanding big discounts whether homes appeared fairly valued or not. Caught in a credit squeeze and by tumbling resale values, many vendors were accepting these low offers.”You can now get 20 to 30 per cent less for homes still advertised for sale at 2008 prices,” said Ms Dell.

“The penny has dropped, and sellers have realised that they will not get the prices now that they might have got in 2008.”

However, vendors who had already cut their asking prices to reflect the weakened state of the market were now turning down even lower offers and in some cases were taking their properties off the market because they were fed up with the bargain hunters, she added.

Meanwhile, genuine investors were snapping up bargain properties quickly, so potential buyers needed to act fast, Ms Dell said. “The window of opportunity in London won’t last as long as people think.

“From this week we started to find we are competing against other buyers, many of them international, for the same property. People sitting on the sidelines thinking they will come in later in the year may miss out.”

But other commentators believed there was still room for further price falls. Russell Hunt, managing director of property finders Property Hunt, said big price cuts were possible in the middle and lower end of the market.

The type of property and its location were less important than the vendor’s circumstances, he said. Unemployment is rising across London and many people are struggling with debt.

“At the upper end of the market, some of the larger houses are achieving close to asking prices, as some confidence has come back to the market. In other cases it really does depend on the vendor’s situation and how keen they are to sell.”

Mr Hunt said there had been an upsurge in the number of Hong Kong buyers arriving in London since the start of the year.

Developers Weston Homes and Berkeley Homes are negotiating deals with Hong Kong buyers at London developments like Bridges Wharf (SEHK: 0004) in Battersea and Chelsea Bridge Wharf.

Robert Hadfield, managing director of investment property management company Pineflat, said yields would need to rise before residential property became an attractive investment, which meant prices needed to fall further.

“My instinct is that we need to get back to 2002 [price] levels before the market will be in some sort of balance,” he said.

According to estate agency Knight Frank’s Winter 2009 London Residential Review, London prices have dropped 20 per cent from their 2007 peak. It expects prices to fall at least another 10 per cent before recovering, with bigger drops likely for newly built properties in secondary locations.

Experts divided on timing of UK deals

To buy or not to buy? That is the question many Hong Kong investors watching the British property market’s slide are asking themselves.

Most property professionals say the answer to the question is buy – although some warn the downturn has years to run.

Latest data shows British property prices continuing to fall. According to the Land Registry, residential property prices fell 0.2 per cent in April – the eighth monthly fall in a row.

In London, Charles Oliver, a director of property finder Chesterton Private Clients, recommended potential buyers take the plunge. “Vendors are becoming more realistic about prices and for anyone thinking of buying now there could be some good opportunities,” he said.

Some Hong Kong investors appear to be doing just that. “There is still good appetite for London property,” said Andrew Jones, a partner at estate agency Knight Frank. “People in Hong Kong still see London as a premier international market.”

Camilla Dell, the managing director of property finder Black Brick, said investors were right to enter the market now because bargains were available.

“Whilst there has been a downturn in prices, property is a medium to long-term investment, over five to 10 years,” Ms Dell said. “Predicting when the market will bottom out is impossible and at the moment we are able to negotiate very aggressively.”

By pinpointing those vendors desperate to sell she was able to knock 11.5 per cent off asking prices on average, she said. The sellers included financiers who had lost their jobs because of the credit crisis, and developers whose finances were overstretched.

But Lucian Cook, a director of residential research at Savills estate agency, said buyers ought to take into account the prospect of prices falling in the future if they bought now.

“As things stand the downturn has not worked its way through the system yet and more has to come,” Mr Cook said. “You would have to say this is particularly the case in prime central London and the new-build sector and we believe prices will fall 10 per cent in prime central London this year.

“Here on it depends on what is happening in the economy, because if the credit crunch gets worse and the economy worsens, then we could have a more prolonged downturn than we were anticipating.”

However, buyers of the country’s most luxurious homes had less to worry about because values for these super-prime properties were continuing to rise, said Mr Cook.

Savills forecast prices would increase 3 per cent for homes valued at £4 million (HK$61.25 million) or more this year, because of strong overseas interest.

Robert Hadfield, the managing director of investment property management company Pineflat, urged caution. “We would definitely advise Hong Kong buyers to sit on their hands at the moment. Although it is definitely a buyers’ market, I don’t feel that there are any real bargains out there yet.

“I feel that there is an additional vulnerability in that many Hong Kong buyers like to buy high-yielding flats to get the maximum weekly rental. This strategy leaves landlords at risk and although I keep reading about the buoyant rental market, our experience is that rental property is only letting quickly if keenly priced.”

But for the moment Hong Kong owners of British property had not been spotted among vendors desperate to sell, agents said.