A letter from London: The importance of SEA buyers in the UK cap

Feb 4, 2013 - PropertyGuru.com.sg

By Prime Resi:

Demand for London residential new-build property is sky high and rising. CBRE revealed last week that the volume of such sales above £1,000 per sq ft leapt by a whopping 240 percent over the last year, and it’s been well-documented that Southeast Asian buyers have increasingly become a dominant force behind similarly remarkable figures, even shaping the way in which developers develop their schemes and marketeers market them.

A few months ago, Jones Lang LaSalle reported that buyers from China, Hong Kong, Malaysia and Singapore accounted for 51 percent of all new-property purchases in central London neighborhoods, up from 47 percent in 2010. Hong Kong buyers made 17 percent of the purchases alone, whilst Savills has reported that Chinese and Asian Pacific buyers accounted for just 5 percent of all purchases in the prime London resale market in 2011/12 (up from 2 percent in the previous year) but a stonking 31 percent of all purchases in the prime new-build market.

Meanwhile, the latest report on global wealth by Credit Suisse showed the number of billionaires in Asia had risen to 351, up from 245 in 2010. The same report showed Europe to have 251 billionaires, whilst North America accounted for a measly 332.

Indeed, almost every agency and developer in town has been throwing a vast amount of resources at this market, with satellite offices, roadshows and representatives springing up all over South East Asia. But what exactly do these buyers look for in a new-build scheme and how can developers and agents attract their invaluable interest? We’ve asked some of the top names in the business to spill the beans…

It’s all about short term investment

Guy Meacock of Prime Purchase: “It is generally accepted that South East Asian buyers are more driven by yield than capital growth. Their mindset is much more focused on the short term gain, which is one of the reasons why they invest heavily in new developments. Often buying off plan and selling just a few years later when the scheme has come out off the ground. They see London as a sensible place to invest recent financial gains; hence why developers take schemes on roadshows to key cities in Asia. They have a very different attitude towards property compared to the west and are hardwired towards what they are used to living in at home; namely apartments.”

Far from drying up, demand is more akin to an eternal fountain

Glentree Estate’s Trevor Abrahmsohn said: “There is certainly a rich seam of buyers from South East Asia particularly Singapore, Hong Kong and Malaysia.  In fact, we have seen a few Malaysian oligarchs buy chunks of London property notably the former St John’s Wood Barracks where a price tag of £250 million was achieved for this trophy site. To be honest most buyers from this region are not so ‘well-heeled’ and probably have an average budget of around £500,000 to £750,000.

These buyers tend to be well educated and hold a warm affinity with London and the UK probably based on England’s Colonial past and its influence in this region in terms of its judiciary, culture and customs. For them to hold a piece of UK real estate is akin to owning a part of English Heritage that they cherish and respect.

There are various reasons why they buy into the London residential property market. Their currency, hitherto, has done well against the pound and they are looking for a buy-to-let investment. When the property is vacant their children, who invariably are sent to universities in London to study, use the accommodation for themselves and when they are not in residence the parents could use it as a pied-de-terre to save hotel costs. It can also provide a very useful pension in later life.

They do insist on there being good transport facilities nearby and their preference is for some sort of landmark building, preferably, a tower that stands out from the streetscape. If they have Chinese origins Feng Shui can play a part but this is not always the case.

From time to time pundits have commented that this seam has been exhausted by the number of developers who make the pilgrimage to the Capitals of South Asia with their latest offerings. But every time they declare the ‘well’ dry a new crop of buyers’ turns up.

So less a well and more an eternal fountain – long may it continue!”

Education and stability are the main draws, but buyers should look before they jump

Black Brick’s Camilla Dell: “Asian buyers are hugely important to the prime and also general London property market. London property has become hugely attractive for many Asian buyers, where many investors feel that their own local property markets have become over-heated and are about to fall – for example property prices in Hong Kong are higher than London. In addition recent changes in stamp duty and capital gains tax is making investing in residential property in Singapore less attractive with significant penalties if investors sell within the first three years of buying a property.

We have experienced strong interest from Malaysians investing into London property is to act as a diversifier. Most of our clients recognise that London is a safe and desirable market and owning a London property makes a lot of sense. Many Malaysians also choose to educate their children in the UK and again, it therefore makes sense for them to have a London base for the children to spend weekends and school holidays. The sterling exchange rate has resulted in their money going further, making London much more attractive for Malaysians compared to Australia, where the strength of the Australian dollar has made it far less attractive for Malaysians to buy.

Buyers and investors from SE Asia are driven by their children being educated in the UK.  We often look after clients who are buying a flat for their children to use whilst studying in the UK rather than renting. In central London, Imperial College in South Kensington is extremely popular with international, often wealthy students, and we will often look at this area for our investment clients as there is substantial demand from students to rent accommodation close by to the college. For example, last years we looked at acquiring a freehold building on Elvaston Place SW7 on behalf of one of our investment clients for £7 million. The building was split into 20 studios and 1 bedroom flats, and 90 percent of the tenants were from Imperial College. The building therefore had very few void periods and was producing a healthy rental yield of 5.5 percent, which is above average for central London rental yields which are normally around 4 to 4.5 percent.

The London Business School in Regent’s Park is also a very popular college, especially with international students and we often advise investment clients to look to these areas as a good place to buy a buy to let investment property. Buyers still need to take advice however. Just because a property is located close to a good school or university does not automatically mean it will make a great rental investment. There are other important factors that need to be taken into consideration as well, such as pricing, the quality of the building, location, proximity to shops and transport links. As with all investments, it makes sense to take advice before buying and engage the services of a reputable independent buying agent.

Asian buyers are significant buyers of London property, particularly off plan new builds. Many of these buyers buying off plan property in London end up making big and often costly mistakes, thinking the development is prime when in reality it isn’t.  Developers often take their new off plan developments and market them in Asia to unsuspecting buyers. Asians are used to buying off plan, however buying off plan in an unfamiliar market and city has big risks. Examples of this include 375 Kensington High Street which is being marketed as a prime address, when the reality is its the wrong end of the Kensington High Street and close to Earls Court. Other developers have marketed their schemes as being in central London when the reality is by different.”

South East Asia is now the first-choice launch platform for new developments

Adam Stackhouse, Head of Developments, Investments & New Homes at Marsh & Parsons: “Generally, buyers from the South East Asia are benefiting from their new found wealth and appetite for London property by being the first choice launch platform for prime London stock that is being sold ‘off-plan.’ Remarkably, this is resulting in the best properties in the capital being made available to overseas buyers first and enabling them to secure some of the very best stock that will be built across the Capital over the next two to three years, before UK residents are invited to view.

These buyers are targeting properties located predominantly north of the Thames with excellent transport links and often a well known London landmark being within relative walking distance. Developers are deliberately ensuring that the traditional porter and lift service arrangements are ‘trumped’ with 24 hour concierge services and ‘in-house’ personal assistants that prepare the properties before arrival right up to the very latest glossy magazine.

The most direct and successful route to this buying audience is to take the properties to them, launching a property overseas to a specific audience of relevant buyers and ensuring that they are provided with a secure and rapid buying environment. This will often involve UK agents setting up joint marketing initiatives with some of the specialised operators in South East Asia who have spent many years developing  a database of wealthy nationals keen to invest in London real estate.”

Investment and education prospects are keeping the demand high

Trish Henderson, Sales and Marketing Director, Taylor Wimpey Central London: “Investors from the Far East, in particular Singapore and Hong Kong, have been key drivers in the high-end London new build residential market. These buyers are looking for solid investment properties, but more and more, properties in areas that offer a great range of lifestyle and education options for their families.

We have seen a surge in interest in areas such as West Hampstead and Camden where spacious apartments can accommodate their families, where rental returns are expected to remain strong and where good transport links provide easy access to a variety of good schools and universities across the capital.”

St James has set up anoffice in Hong Kong with some surprising reactions

Developer St James has sold 70 percent of the first phase of Riverlight to buyers in Singapore, Hong Kong and China. What the Singaporean buyers are liking about the development is that originally they saw it as a great investment – they’d get good capital growth, strong rental yields and they perceive that London is a safe place to invest in. Values in the Nine Elms area are expected to rise by 140 percemt as reported by Knight Frank in their London Hotspot Report, with property prices anticipated to rise to £2,250 per square foot in 2016. They’re also interested in securing a home base for their children who they anticipate educating in London once they get to university. Of course, water is considered auspicious and is an important part of Chinese philosophy as it’s part of the five elements, they love the river front location as well.

Riverlight has taken a very personal approach to taking their SE Asian buyers through the buying process. They are the first developer to set up a dedicated office in Hong Kong for purchasers to be taken through the fun part of buying process – choosing their kitchen fit outs, bathrooms and so on. Much like the traditional British tailor takes you through the whole process of having a suit made bespoke to your specific requirements, St James are taking their Singaporean buyers through the same process (they’re flying out specifically for this process)…it’s a really nice way to make the development real when a) it hasn’t been built yet and b) is so far away!

What the sales team weren’t expecting was that when they went out to meet with their buyers to take them through their choices for kitchens, bathrooms, carpets and finishes…lots of them starting saying they’d considered using the residences for personal use. St James weren’t expecting this change of sentiment from being purely investment focused to thinking about their purchases for personal use."

Location, location and return assessments

Linda Beaney, Development Director Beaney Pearce: “The main criteria for Far Eastern purchasers of new developments primarily are a) central b) safe neighbourhoods c) well-located for the tube and in locations which will readily appeal to rental investors, to whom the majority will be letting their units.

Those who don’t buy for rental investment primarily buy for their children studying in London. Developers frequently undertake marketing exhibitions in the Far East immediately prior to any UK launch as the buyers there like to feel they are the first to cherry pick the apartments off plan when they are pre-sold.

Oriental buyers are highly driven by superstition and so unlucky numbers such as 4 will be avoided whilst 8 is deemed the opposite. Some developers change marketing numbers and scheme names especially gearing them to take such superstitions into account. Equally, certain colours are deemed fortunate and others – white, for example, less so. Detailed net return assessments including achievable rents and costings for fully furnishing units and provision for average occupancy levels need to be provided for the buyers to consider, as well as past statistics for capital growth.

Buyers can be reached in these markets either through agents who have good representation in the Far East and or through and agents such as Beaney Pearce. We have built up a vast portfolio of Far Eastern investment landlords through our development sales and lettings services over many years.”

Efforts are ramping up to cater for this extraordinary wave of wealth

Davide Ruggiero, Founder of luxury property portal Te Atrium: The last few years of economic boom have brought with it a new wave of Chinese wealth. Along with Russia, China has seen the biggest increase in global billionaires in recent years, and in August 2012, the number of millionaires surpassed the 1 million mark. The interest in foreign property investments shows no sign of abating as the domestic political and economic environment is still less predictable than the one of Western countries and therefore the Chinese look abroad for good values.

London’s enduring attractiveness stems from its combination of stable yields, diversified demand and lax foreign investment restrictions. According to research from Chesterton Humberts, in June 2012 the Prime London residential yield stood at 4.22 percent, and well below 4 percent for some of the most exclusive neighbourhoods such as Belgravia, Mayfair, Chelsea and Kensington. In December 2012 luxury property prices in core central locations were up 8.7 percent year-on-year according to Knight Frank Research, with Hyde Park, Knightsbridge and Islington leading the way in recent months.

In addition, Chinese currency appreciations have made real estate more affordable, even though property prices have risen significantly in recent years.

While some Chinese buyers mainly desire to make a stable investment and rent out their property after purchase, many others are looking to use the property as a base while at university  or business reasons.

Within London, the Chinese often tend to buy apartments in new developments, with the most alluring around Knightsbridge. One Hyde Park near Knightsbridge is an ultra-luxury development managed by Candy and Candy with apartments from £7 million to £136 million, with more than 80 percent foreign buyers, of which 40 percent are Asian. In the last month, the five latest flats sold in the complex were to Asian buyers at an average of £6,000 per square foot.

While there are canny investors, more often, Chinese buyers just have an idea of what they want and are able to make a cash purchase. The risk is that they may not be aware of significant price differences between core locations and less prestigious ones and end up paying an unnecessary premium or, more simply, buying an overpriced property. Because property acquisitions often require the expertise of various professionals, at Te Atrium, we recommend the most qualified local partners that offer not only property finding services but also tax, legal, financing and immigration services to ensure a successful transaction.

Our business, as with many of our UK based partners, are ramping up our efforts both at home and abroad to target this growing Asian market. We currently have a high number of Asian clients using our service to find property in London through the trusted agents and developers listed on our site.

Many of our partners in the capital have invested in hiring Chinese-speaking brokers and are also finding development projects tailored to Chinese culture by incorporating Feng Shui design, building a separate space for a wok kitchen, omitting the number four, which is thought to be ominous, and incorporating the number eight, which is thought to be lucky."

Chinese numerology apart, as 2013 starts, those real estate companies dealing with Far-East property investors should enjoy a prosperous year.

This story was first published by PrimeResi, a website dedicated to news from prime central London, and is reproduced as part of an editorial partnership between DDproperty.com and PrimeResi.