Property Investment

Hongkongers turn to Brexit Britain as a haven

by International Commercial Investment on December 5, 2019

Source: Financial Times

The market for newly built luxury homes in London has been in the doldrums for almost five years, battered by oversupply, tax changes and worries over Brexit. Now, though, it has received a boost from a territory whose political troubles have eclipsed even the UK’s: Hong Kong.

Residents of the semi-autonomous Chinese city have been buying up London homes, while in the commercial property sector purchasers are eyeing big deals, according to analysts and estate agents.

The turmoil in the former UK colony stemming from anti-government protests has revived longstanding links with London and made Brexit appear comparatively unthreatening, propelling a fresh wave of buyers westwards.

“We are seeing masses of [Hongkongers] again,” says Steven Herd, chief executive of MyLondonHome, an estate agent. “What is going on in Hong Kong is driving people to look for a safe haven. It is partly about wealthy families making sure they have property elsewhere that is suitable for them to move into at short notice, and partly about them wishing to get their funds out of a volatile region.”

The number of Hong Kong buyers in London has increased in the past three to four months, many of them seeking homes in the £1m-£2.5m price range, says Herd. The weakness of sterling and falling luxury property prices have added to London’s allure, he says.

“Undoubtedly they have helped to underpin the market and stop it sliding.” Hongkongers tend to prefer new properties. Molior, a company that monitors property developments in London, says 5,156 new homes in the capital were sold in the third quarter of 2019, the highest figure in a year and a half. About a fifth of these went to overseas purchasers, many of whom were from Hong Kong and China. “It is [homes] at the [upmarket] £1,000-£1,200 per square foot level, which haven’t sold well for several years,” says Tim Craine, a director at Molior.

He adds that, despite worries about Brexit, the trend taps into London’s reputation as a haven for wealth from unstable parts of the world. “It is the flight to safety,” he says. “A decade ago it was buyers from around the Mediterranean as the Arab Spring took place, then maybe four to five years ago it was Saudi Arabia. The tide has come in at this particular time because of the trouble in Hong Kong.” By way of illustration, about one in 10 homes sold so far in a new housing scheme by developer Ballymore in Brentford, west London, has gone to a Hong Kong buyer, the company says.

Buyers from Hong Kong are able to defy a broad drop in outbound capital from mainland China, partly because the mainland’s tighter capital controls do not apply in the territory. But more political certainty in the UK would cement the trend, agents say.

There are uncertainties in the US or China and difficulties in the UK, but it is more stable Ronald Sin, Cheung & Sons The “flailing” of sterling “is definitely a contributing factor”, says one British national who grew up in Hong Kong and is considering a purchase in the UK. “I have been considering it for about a year now, but I have put a hold on the process as I think prices will continue to drop [in the UK]. I just have a total lack of confidence in how the government is handling Brexit, so I feel like I have time,” she says. Estate agents note that for Hongkongers, London is not purely an investment destination but also a place to live, full or part-time.

The city has a thriving community from the territory, including the children of wealthy and middle-class Asians at London’s highly rated schools and universities. Caspar Harvard-Walls, a London-based buying agent with Black Brick, has been meeting prospective clients in Asia.

“Some potential [Hong Kong Chinese] clients have raised concerns about their children becoming caught up in the protests and see the appeal of sending them overseas for their secondary or higher education. They are looking for accompanying accommodation,” he says.

Harvard-Walls uses the discount on prime London houses compared with the market peak in 2014 in his pitch — that is, a 34.4 per cent reduction in Hong Kong dollar terms from five years ago, thanks to the depreciation of sterling and the fall in house prices from that peak.

The inflow of capital has been less pronounced in commercial property, where London transaction levels have been dwindling because of Brexit worries — not least because sellers fear exposing properties to an uncertain market.

A run of big purchases by Hong Kong and Chinese buyers two years ago — including landmark skyscrapers in London’s financial district such as the Leadenhall Building (the “Cheesegrater”) and 20 Fenchurch Street (the “Walkie Talkie”) — has been followed by a quieter market. In August, however, CK Asset Holdings — the company founded by Li Ka-shing, Hong Kong’s richest man — bought UK pubs and brewery group Greene King in a £4.6bn deal.

The brewer’s £3.5bn freehold property portfolio was most likely one of the attractions. This followed a failed bid in 2018 for a portfolio of railway-arch properties ultimately sold for £1.5bn. CK Asset is now run by Li’s son Victor Li, but its activities are still followed closely by other Hong Kong investors, says one Chinese lawyer operating in London.

“Where Li Ka-shing moves, others follow,” he says. New entrants from Hong Kong are arriving in the UK commercial property market. In September, a first-time Hong Kong buyer, a client of investment company Goldstone Commercial, bought the Forum St Paul’s office building in the City of London for £80m.

“[Investors] see Brexit as possibly reaching its endgame, and it is all outweighed by the fact that the rioting [in Hong Kong] is pretty horrendous,” says Nick Braybrook, a partner at estate agent Knight Frank in London who advised the buyer. He says people in the UK “don’t register how emotive it is — it’s splitting companies in half, families in half”.

In another City of London deal, Cheung & Sons, a Hong Kong-based property developer, in June bought the freehold of 28-30 Cornhill, a 1930s-built office building near the Bank of England, for £32m. “Buying property in London is quite attractive at this moment,” says Ronald Sin, a senior associate at Cheung & Sons.

“Many wealthy people from Hong Kong or in Asia are looking at the market in London. In China or the US, there are many uncertainties. There are also difficulties in the UK, but it is more stable,” he says. In July, a joint venture fronted by Hong Kong-listed Wing Tai Properties — which owns at least two other central London properties — agreed to purchase 8 Salisbury Square, a 155,000 square foot office building near St Paul’s Cathedral, for £222m, according to estate agent Savills.

Interest in London’s office sector is strong, says Antonio Wu, deputy managing director at estate agent Colliers International in Hong Kong. He says for investors, offices will be the “most interesting sector by far”, adding that “occupancy is still very strong and very healthy”.

Many of the big Hong Kong property groups are also looking at other types of investments in the UK, according to a London-based property lawyer. “There is strong interest, but not this time as a pure real estate play,” he says. At the same time, investors are looking at technology, fashion, leisure and green energy, he adds, but are “nervous” about the possible election of a Labour government led by the leftwing Jeremy Corbyn. “Let’s face it, these investors are some of the most neoliberal people in the world,” he says.

Elsewhere in the world, Hong Kong homebuyers have strong links with Vancouver, New York and Sydney, while commercial buyers have been increasingly active in Singapore and the US, according to data from Cushman & Wakefield, a property services company. Savills’ residential division notes a steep rise in enquiries from Hongkongers — from 1,045 in the whole of 2018 to 1,620 so far this year — in most cases, about UK homes.

But not all have resulted in purchases. Mark Elliott, head of international residential at Savills in Hong Kong, says many enquiries have come from “people who watch the news at night, get a little bit scared and pick up the phone, but you don’t hear from them again”.

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International Commercial InvestmentHongkongers turn to Brexit Britain as a haven

UK Housing Market Remains Resilient in August

by International Commercial Investment on September 1, 2019

Source: Property Notify

he UK housing market remained resilient in August, despite prices remaining relatively static since March, according to the latest Halifax House Price Index.

UK homes were worth an average of £233,541 last month, having grown 1.8 per cent year-on-year. On a monthly basis, prices grew by 0.3 per cent, suggesting continued price gains, despite a slower annual rate of growth.

The stable prices coincide with a period of political uncertainty surrounding the UK’s expected departure from the EU. The UK had originally been expected to withdraw from the EU in late March but was eventually granted an extension to Article 50 until October.

MPs have since voted to pass a bill, to request for an extension until as late as January 2020, in the event that the government is unable to secure a new withdrawal deal by the existing October deadline.

Price gains despite weakness

In August, UK home prices remained stable, despite weak sentiment in the market overall. Figures from Her Majesty’s Revenue and Customs (HRMC) suggested home sales were falling at an annual rate of 12.4 per cent, between July 2018 and July 2019.

Despite this, Halifax pointed to an uptick in mortgage approvals, citing data from the Bank of England. They noted that the volume of mortgages approved for financing home purchases rose to 67,306 in July 2019, which was an increase of 1.2 per cent since June, and the highest volume seen since July 2017.

Halifax also reported that the stock of homes-for-sale per surveyor was almost half the level seen at the peak in stock levels in 2008. Before the financial crisis, roughly 85 homes were listed for sale per surveyor, but as of July 2019, closer to 40 were found to be listed as homes-for-sale per surveyor.

Resilience amid uncertainty

The UK housing market was subject to great political and economic uncertainty earlier in the first half of 2019, but a variety of positive fundamentals helped keep it relatively stable.

Russell Galley, managing director at Halifax explained: “While ongoing economic uncertainty continues to weigh on consumer sentiment – with evidence of both buyers and sellers exercising some caution – a number of important underlying factors such as affordability and employment remain strong.”

This strength was reflected, when the Office for National Statistics reported that wages in Great Britain grew at their fastest rate in nominal terms in over a decade, in July 2019, at an annual rate of 3.8 per cent. Faster wage growth indicated more disposable income, increasing the potential for higher consumer spending.

Mr Galley concluded, saying: “Although the housing market will undoubtedly be influenced by events in the wider economy, it continues to show a degree of resilience for the time being. We should not lose sight of the fact that the single biggest driver of both prices and activity over the longer-term remains the dearth of available properties to meet demand from buyers.”

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International Commercial InvestmentUK Housing Market Remains Resilient in August

Investment in U.K. Residential Property Up 150% Despite Brexit

by International Commercial Investment on August 1, 2019

Source: Bloomberg

The uncertainties of Britain’s departure from the European Union hasn’t stopped investors from backing the U.K.’s residential sector.

Total investment volumes in the U.K.’s multifamily sector rose by more than 150% to 6.8 billion euros ($7.6 billion) in 2018, according to a report by broker JLL. London helped lead the charge, with investment volume nearly doubling to 2 billion euros compared to 2017.

That helped the U.K. capital rise to become the fourth-biggest European city for multifamily investment, behind Berlin, Copenhagen and Paris.

Investment in European multifamily properties rose by 40% to 56 billion euros in 2018. The market has proved popular among investors because of the stable cash flow from such buildings and a shortage of supply in Europe’s top-tier cities.

Still, the U.K.’s charge may be shortlived as the uncertainty around Brexit continues to mushroom.

“Given the lack of progress with Brexit, some foreign investors have become more cautious when considering a market entrance,” JLL’s Simon Scott said in the report.

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International Commercial InvestmentInvestment in U.K. Residential Property Up 150% Despite Brexit

Property market optimistic about new Prime Minister in the UK

by International Commercial Investment on August 1, 2019

Source: Property Wire

New Prime Minister Boris Johnson could be positive for the UK’s property market, particularly if he delivers Brexit on time and reforms stamp duty, according to industry commentators.

Although change may not come quickly as it is likely he will focus initially on getting Brexit sorted out, although that on its own will give more certainty to the housing market. The overall feel is that he will inject more enthusiasm into the sector.

‘Brexit has continued to be something of a grey cloud that has loomed over the top end of the market for nigh on three years now and continues to be the driving force behind its instability, particularly in prime central London,’ said Lisa Simon, head of residential at Carter Jonas.

‘Promises from Johnson around the relief of onerous taxes is a potentially positive move for the market but this all hinges on whether or not the new Prime Minister can hold his position and prevail against the opposition in the event of a general election,’ she explained.

She believes that it might be better to adopt more of a Jeremy Hunt mindset and she thinks his proposed policies would have served home owners well. ‘Hunt’s plans to put more steam behind the private rental sector and allowing councils to buy land, to commission more homes at a price people can afford, would have made home ownership more accessible to aspiring first time buyers in the capital and so Johnson should consider bringing Hunt’s vision for housing to life under his own leadership,’ she pointed out.

‘Johnson’s intentions to generate more movement in the top end should clear some of the blockages further down the chain but home ownership and affordability in the mass market is still an issue that is yet to be addressed in the right way. While benefits to the top end should filter down, Johnson should be driving forward policies that tackle challenges in the middle and lower end of the market more head on,’ she added.

According to Camilla Dell, manging director at Black Brick, a move to reverse the stamp duty increases put in place by George Osborne, when the top rate increased from 7% to 12%, would be very good news, particularly for the London market which has been suffering from an onslaught of tax hikes on property since the end of 2014.

‘There is now clear evidence that the stamp duty increases have started to dent the tax take. We would welcome a review of current property taxation, particularly the 3% surcharge and proposed 1% additional charge on foreign buyers, which has had the effect of pouring glue into the market and resulting in a dramatic fall in the number of transactions happening on an annual basis,’ she explained.

‘Furthermore, a move to cut stamp duty on homes below £500,000 would clearly benefit the first-time buyer market. In our opinion, this should only apply to first time buyers and not investors. However, the market needs to treat promises made by Boris Johnson with real caution,’ she added.

Robert Nichols, chief executive officer of Portico estate agents, pointed out that it is no secret that stamp duty hampers household mobility and the higher the tax, the more difficult it is for people to move and keep the market moving.

‘We saw the market go into standstill when George Osborne hiked up stamp duty for homes valued at £925,000 or more in 2014. There was a huge spike in volume as investors and second-home buyers rushed to buy properties before the stamp duty changes came into effect in April,’ he said.

‘But as quickly as volumes went up, they came down again dramatically and in Westminster, prime central London, we saw volumes drop to below 100 transactions in a month to a record low of 84. If Boris Johnson does reduce stamp duty, it would certainly invigorate the top end of the property market and we should see transactions increase,’ he added.

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International Commercial InvestmentProperty market optimistic about new Prime Minister in the UK

Property market remains resilient as June sees a drop in new listings

by International Commercial Investment on July 4, 2019

Source: Property Reporter

According to the latest data released by online estate agent, Housesimple, the number of new property listings across the UK fell by 1.9% in June 2019.

However, positively the index recorded more than 60,000 new listings for the second month in a row, as sellers continue to take advantage of the summer months and a reduction in Brexit uncertainty to market their properties.

Last month 61,775 new properties came onto the market across the country, down from 63,001 in May 2019. The biggest falls were in the South East and South of England, where new listings fell by 11.1% and 8.7% respectively in June 2019.

The towns and cities leading the decline in new property listings included Canterbury in the South East (-31%) and Truro in the South of England (- 30.3%). Warwick (-29.7%) and Shrewsbury (-29%) in the West Midlands also saw significant reductions, along with Huddersfield in Yorkshire (- 26.5%).

Yet despite most of the UK experiencing a steady deceleration in property listings, the North West bucked the trend.

The number of new properties for sale in the region increased by 3.92% from May 2019 to June 2019. Bolton (95.5%) and Bootle (283.5%) dominated this growth in the North West, with the number of new listings in Salford (7.7%), Liverpool (6.3%), Rochdale (5.9%) and St Helens (1.5%) also increasing from May to June.

London also defied the summer slowdown, reaching a level not yet seen all year. New supply was up 2% compared to the month prior, rising from 24,607 in May 2019 to 25,106 in June 2019. Just 10 of the 32 boroughs saw new supply levels fall last month. Newham and Lambeth were the best performers, with a respective 17.1% and 16.4% lift in new homes for sale.

The Housesimple Property Supply Index, issued monthly, analyses the number of new properties listed each month by estate agents across more than 100 major UK towns and cities. Year-on-year the number of new property listings declined by 12.7% in June 2019, with a total of 70,775 new properties listed in June last year.

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International Commercial InvestmentProperty market remains resilient as June sees a drop in new listings

UK house prices gather a bit more speed in April

by International Commercial Investment on May 1, 2019

Source: Reuters

Growth in British house prices picked up slightly in April, data from mortgage lender Nationwide showed on Wednesday, adding to other signs that a slowdown in the housing market ahead of Brexit might have bottomed out.

Prices rose by 0.9 percent in annual terms, speeding up from a rise of 0.7 percent in March.

That was the biggest increase since November although it was still weak compared with recent trends in the often surging UK housing market – prices were rising by about 5 percent a year at the time of the Brexit referendum in 2016, according to Nationwide.

In monthly terms, prices rose by 0.4 percent after rising by 0.2 percent in March, also the biggest increase since November.

Economists polled by Reuters had expected prices to increase by 0.7 percent in annual terms and to rise by 0.2 percent compared with March.

Robert Gardner, an economist with Nationwide, said first-time buyers appeared to be defying the jitters around Britain’s still uncertain departure from the European Union, helped by low interest rates and the lowest unemployment rate in more than 40 years.

“While the ongoing economic uncertainties have clearly been weighing on consumer sentiment, this hasn’t prevented further steady gains in the number of first time buyers entering the housing market in recent quarters,” he said.

The number of mortgages taken out by first-time buyers was approaching pre-financial crisis levels, the data showed.

While prices have been rising across the country as a whole, prices in London have fallen according to various measures of the market, hit by a combination of unaffordable prices for many buyers, tax changes affecting the buy-to-let market and the Brexit uncertainty which has weighed heavily on the capital’s financial services industry.

British Prime Minister Theresa May last month secured an extension to the Brexit deadline until Oct. 31, avoiding the potential shock of a no-deal Brexit for now but leaving the world’s fifth-biggest economy still deep in uncertainty about how it will leave the EU.

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International Commercial InvestmentUK house prices gather a bit more speed in April

‘Generation Rent’ is reshaping the UK property market

by International Commercial Investment on April 1, 2019

Source: Business Leader

Two of the big trends transforming the British property landscape today are the rise of ‘Generation Rent’ and the falling number of retail stores on UK high streets. Both are leading to a radically changed outlook for businesses in urban areas.

For property investors, owners and occupiers, the combination of these two shifts provides genuine hope for the revitalisation of the high street. What we are seeing is that UK town and city centres will increasingly become a place to live, work, play (and shop), as ‘Generation Rent’ is stimulating increased demand for residential rentals in these areas.

The most recent MRI Software research into the UK marketplace shows that city and town centres are where ‘Generation Rent’ – the Gen Z and Millennial renters who have been priced out of the home purchase market – want to live. Nine in ten (91%) of the top executives and managers in the property sector surveyed by MRI say ‘Generation Rent’ prefer to live in town and city centres, so they can have easy access to amenities that suit their lifestyle – such as gyms, cafes and bars, shops and services.

Rising house prices may be a root cause of preventing younger generations from being able to step onto the property ladder – but it’s also the case that as more people rent and the market expands, so too does the choice and quality available. Indeed, a recent Knight Frank report revealed that more than 10% of tenants say renting enables them to live in an area they could not otherwise afford. The result is renting becomes a more attractive proposition and a longer-term choice.

We are seeing, increasingly, that the standards ‘Generation Rent’ are demanding in rental accommodation promise to reshape the market and bring in a new level of professionalised property management. Four out of five (82%) of the senior property professionals surveyed say ‘Generation Rent’ is here to stay with little likelihood buying conditions will improve.

A greater demand for high-quality residential property, close to retail and leisure outlets, is music to the ears of investors and owners with interest in urban property. According to the MRI survey:

  • 82% of say projects to redevelop former retail premises to create mixed-use properties, including residential, will be a lucrative opportunity over the next 12-18 months
  • 72% see residential development former retail premises as the route to giving the British High Street “a new lease of life”
  • 90% say residential rentals in UK town and city centres will become increasingly important for property owners

This trend is demonstrated by news in recent months that major property players such as Intu, Aberdeen Standard Investments and Redevco are committing significant resource to residential development in these types of areas in the UK. In fact, two-thirds (66%) of the senior property professionals surveyed think ex-retail property could be the biggest untapped resource for new residential development in the UK. What’s more, increasingly we are seeing these recognised names turn their attentions to potentially lucrative ‘Build-to-Rent’ developments in UK towns and cities.

And how does this help retail? While the challenges faced by the sector won’t be solved overnight by an ongoing shift to residential, the trend will provide a significant boost to property owners with premises along Britain’s beleaguered high streets. Additionally, in the long term, more people living in town centres will enhance opportunities for occupiers of retail space – and other physical locations such as coffee shops, health clubs and entertainment venues.

Ultimately, much of what we’re talking about here is future opportunity. For investors, owners and occupiers of mixed-use space to all realise the benefits, there will have to be a level of collaboration and that has perhaps never been seen before in the UK property sector.

Technology, which is a pillar of the flexible ‘work, live, play’ culture that is driving the change, will play a major role in enabling all of the stakeholders to manage the transition and build a successful and sustainable model. With these systems in place, organisations can turn data into genuine insight to truly understand what facilities and services prospective and existing tenants want – and whether, for example, a downstairs coffee shop or a gym will drive higher rents and occupancies.

This level of diversification will not be without its challenges, but if businesses are willing to adapt, then the potential benefits are there for all to see.

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International Commercial Investment‘Generation Rent’ is reshaping the UK property market

Overseas money still piling into the UK property market

by International Commercial Investment on December 11, 2018

Source: Investors Chronicle

Potential housebuyers in the UK seem to be sitting on their hands right now, and you can guess any number of reasons why, from Brexit to interest rate worries or concerns over the health of the UK economy. Overseas buyers don’t quite see it that way, and this year a third of all homes bought in the UK for £1m or more were snapped up by foreign investors as second homes.

Forget about higher stamp duty and capital gains liabilities, investors from Russia, the Middle East and the Far East especially are homing in on the UK and London in particular. Some of the attraction comes from the fact that expensive homes have fallen in value, which for an overseas buyer comes on top of sterling weakness. So, it’s good news at the Treasury because in the past year the percentage of stamp duty income gathered from second home buyers in this price bracket has jumped from just under 30 per cent to 50 per cent. In fact, income generated through the additional 3 per cent stamp duty has risen by over 20 per cent in 2018 so far to over £4bn. And if you include houses in all price brackets, over 40 per cent of total receipts came from second home purchases.

London has always been seen as a handy place to park funds because it is relatively safe both politically and economically. But these funds are also being put to work because three-quarters of overseas purchases were made for buy-to-let. More than a quarter of second homes worth over £1m were bought in London, with the largest amount of stamp duty generated in Westminster at £594m.

Back in the real world, the number of existing homes coming on to the market is very close to an all-time low, with sales volume either flat or negative across 11 of the UK’s 12 regions. At the same time, tenant demand for rented properties is holding up well, but rents could be pushed higher because the number of landlord instructions has continued to fall, recording the 10th straight quarter of decline, the longest negative stretch since the series was created in 1999, according to the Royal Institution of Chartered Surveyors.

Looking a little further back, however, shows that real rents adjusted for inflation have fallen 2.2 per cent in the past 10 years, according to Countrywide (CWD) subsidiary Hamptons International. In that time, rents have risen by 22 per cent but inflation has climbed 24 per cent. That inflation outpaced rental growth to some extent reflects the fact that the start of the 10-year period covered the wake of the financial crash, which gave landlords little opportunity to push rents higher. The east of England and London are the only regions where rental growth has outpaced inflation, whereas in the Midlands real rents over the 10-year period fell by 7.8 per cent. However, rental growth on new-let properties reached 2 per cent in October this year, the highest level since February, as every region recorded a rise in rents. The biggest gain came in the east of England at 3.9 per cent. And even London chipped in with the second monthly gains in a row, giving a year-on-year increase of 1.4 per cent.

Given the current atmosphere of uncertainty, the gains may seem puzzling, but the reality could be that rents are climbing because supply is falling. As more small landlords exit the market following heavier taxation, the number of homes for rent is falling just at the same time as demand is increasing.

It may well be that the government is leaning towards bigger corporate landlords making up the shortfall, and steps have also been taken to stimulate more government-funded social housing. Major housebuilders are also getting in on the act, by forming partnerships with local authorities to build on council-owned land, while a number of private institutions are forging ahead with build-to-rent schemes through forward funding arrangements with housebuilders. The big question now is whether this will all be enough to fill the gap. With supply in continued decline, rents are forecast to rise by 15 per cent over the next five years, which is generally bad news for tenants. Especially so because since 1991 the number of homeowners between the ages of 16 and 34 has dropped from 51 per cent to just 24 per cent, while renters in the same age group have risen from 56 per cent to 73 per cent.

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International Commercial InvestmentOverseas money still piling into the UK property market