Property investors have beaten a path to London in recent years, drawn by its weak currency, safe haven status and relentless house price growth.
Every time a new crisis strikes, whether it’s the Arab Spring, euro-zone meltdown or emerging market turmoil, nervous investors around the world seek to park some of their wealth in London.
Middle Eastern buyers were responsible for 7.5 per cent of all prime residential real estate sales in London in 2012, according to Knight Frank.
And up to 70 per cent of newly-built homes in prime London locations are now bought by overseas buyers, led by Nigerians, French and Greeks, figures from Chesterton Humberts reveal.
Phase one of the Battersea Power Station development in West London, released in January 2013, sold out of most of its 866 luxury apartments within days, snapped up by Singaporean investors looking to flee emerging market storms.
This year, investors from the troubled countries Argentina, Turkey and Ukraine have led the charge into London.
But now sterling is strengthening, and so is local resistance to the influx of foreign money, as parts of the capital turn into foreign-owned ghost towns. Is it time to look elsewhere?
Many UAE expats are seeking new horizons. Rupert Connor, an independent financial adviser based in Dubai, already owns property in London, and was looking for diversification. “I was torn between Australia, the US and Kuala Lumpur, but Kuala Lumpur really took my eye,” he says. “The Malaysian economy has been growing steadily, but property is still good value. Kuala Lumpur is very close to Singapore, Thailand and Hong Kong, and all that wealth should eventually spill over.”
Mr Connor, 35, who has lived in the UAE for seven years, took out a 70 per cent loan-to-value (LTV) mortgage with HSBC Malaysia to buy a three-bedroom apartment off-plan. “This is purely an investment, I hadn’t even been to Kuala Lumpur when I bought the property. I liked the fact that its property law is based on the British legal system. Better still, there is no capital gains tax if you sell after five years.”
He plans to hold the property much longer than that, in search of a steady, long-term return,
“I’m not expecting the price to double in 10 years, but the rental income should give me a steady yield,” Mr Connor says, adding he is also considering investing in the UAE property market.
Paul Preston, director and head of Middle East at property investment specialists IP Global, picks out Brisbane, Australia, as the next property market to perform.
Sydney and Melbourne have raced ahead in recent years, but Brisbane now looks better value, he says.
“Its property market has been relatively stagnant for six years, but now price rises are starting to gain pace. The areas around Fortitude Valley offer great value and good rental returns, with vacancy rates of less than 1 per cent. A huge number of big corporates are moving into the Valley area, creating more jobs and pushing property prices upwards.”
Wherever you plan to invest, you need to ask three questions, Mr Preston says: “First, will the property’s capital value rise over the mid to long-term? Second, is there a healthy local rental market with strong and sustainable yields? Finally, will there be plenty of buyers if you need to sell the property at a later date?”
Many investors overlook this final question, but a safe exit is key to your ultimate success.
“To secure your exit, look for somewhere with desirable and affordable property, a healthy domestic market and readily available bank finance for prospective buyers. Brisbane has all three qualities,” Mr Preston says.
While some investors are looking to “flip” properties to generate a quick cash return, sophisticated investors should create a diverse portfolio of property in established markets around the world, says David Hughes, senior area manager, PIC (Middle East).
“Since the financial crisis we have identified the key markets to be London, Manhattan, San Francisco, Kuala Lumpur and, more recently, Sydney and Brisbane,” he says.
Other cities are starting to attract investors and enjoy strong growth, he says. “These include Chicago and Seattle in the US, Manchester and Bristol in the UK, Perth in Australia, and the Kuala Lumpur outer regions.”
As the euro zone slowly emerges from recession, a number of cities should look attractive to investors, including Berlin, Dublin, Madrid and Istanbul, Mr Hughes adds.
The key is to spread your money around to reduce risk, and do your research. “Investing large quantities of money in unknown markets can be risky, so consider taking independent specialist advice,” says Mr Hughes, who advises investors to remember they will also be exposed to currency swings, which could affect the capital value of your investment, and the rental income you receive.
London, New York, Singapore and Hong Kong have benefited most from cheap money policies adopted by central bankers, says Liam Bailey, global head of residential research at the estate agents Knight Frank.
But worried governments, especially in Asia, are now looking to stem the flow of cheap money by intervening in their property markets. “The weight of money leaving China and landing in markets like Hong Kong and Singapore has sparked a political reaction. If you are a non-resident and want to buy in Hong Kong or Singapore, you now face significantly increased levels of stamp duty,” says Mr Bailey
In mainland China, the authorities have capped maximum loan-to-values in key cities. Even in London, stamp duty has increased on top-end properties, while foreign investors now have to pay capital gains tax when they sell.
Global property price rises may slow, as rising interest rates push up mortgage costs, but any fall is unlikely, Mr Bailey says: “Another 4,500 people join the ranks of the global super-wealthy every year, people with at least US$30 million to invest. These newly wealthy individuals will want to invest some of their money in prime property.”
While London is facing greater competition, it has just enjoyed its best January ever, with properties selling in record time, and at record highs.
The average property in the prime central London areas of Chelsea, Kensington, Notting Hill, Holland Park and Pimlico rose 10 per cent in 2013 to £2,108,717.
The estate agency Marsh & Parsons, which produced these figures, predicts London prices will rise by up to 7 per cent this year.
“Even if demand from overseas investors does fall, there is so much pent-up domestic demand that local buyers will take up any slack,” says Sue Foxley, a research director at the estate agency Cluttons.
business@thenational.ae
Follow us on Twitter @TheNationalPF
