According to a new international investment report by Knight Frank, Asian Investors are now buying more than a fifth of all central London new-build properties, and now account for 49% of all investment purchases in central London (this compares to only 36% purchased by UK investors).
According to a new international investment report by Knight Frank, Asian Investors are now buying more than a fifth of all central London new-build properties, and now account for 49% of all investment purchases in central London (this compares to only 36% purchased by UK investors).
Liam Bailey, head of residential research, Knight Frank, commented: “The revival of international investment demand for new-build property has been one of the most remarkable features of the residential property market over the past 18 months. While the market has returned to life, after it pretty much shut-down in 2008, current international investment demand is almost totally concentrated on London and is primarily coming from Asia.
“Of the 7,595 new-build properties completed in the 12 months to March 2010, 41% of these were bought by investors rather than owner occupiers.
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“49% of all investors in the 12 months to March 2010 were Asian, 11% were from Chinese / Hong Kong, 10% from Singapore, and 7% Malaysian.
“Knight Frank estimates that over the last 12 months the total volume of Asian investment has totalled £761million.
“Why is this demand growing? While the weaker pound has created a compelling buying opportunity for Asian investors, overseas purchasers buy property in the UK for a number of reasons but in almost all cases they are looking for a secure return on their investment. The interaction of currency movements, strong capital price growth and, more recently, rising rents, have created an attractive investment case for many investors considering central London property.
“Despite prices rising by 22% in the 14 months up to the end of May 2010, effective prices in central London were still 32% lower compared to their peak March 2008 level for a purchaser looking to buy in Hong Kong dollars as a result of currency movements. Asian buyers have also benefited from the wealth created from strong Asian price growth. Similar savings have been delivered to Singapore, Malaysian and European buyers.
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“Rents in London have been rising since June last year and high demand has meant lower void periods. The problem for buyers looking to secure stronger investment yields has been that capital growth has outstripped rental growth in the past year and yields are being squeezed further. For new build properties in a good location a gross yield of above 5% is rare.
“As Asian domestic markets show their own signs of difficulties, Chinese buyers in particular are keen to spread their exposure and invest in markets they regard as more secure than their own if they can get through the regulatory minefield and release the funds. In mainland China, local investors have become more nervous about keeping money in their own country after outstanding credit rose by 30% and at least seven Chinese cities saw their new home prices surge more than 50% over the 12 months to March 2010. The Chinese have built a reputation as strong savers and investors, the relentless rise in domestic property prices since house ownership was legalised in 1998 has encouraged a strong belief in bricks and mortar investments.
“We cannot underestimate the role of UK education in encouraging inward investment into London; over the past decade the number of Asian students studying in UK universities has risen by 175%. The strongest growth comes from Chinese, Indian and Pakistani nationals. The number of Chinese studying in the UK rose from 4,017 in 1998/99 to 47,035 in 2008/09. In many cases Asian investors look to buy to cover the period of their child’s university duration and then retain as an investment.
Where do they buy?
Sebastian Warner of Knight Frank’s residential investment team commented: “Asian investors focus on good location, favouring zone 1 and 2 and generally demand that they are very close to a tube station. The prospect of a new underground station can attract investors to previously less fashionable postcodes. The jubilee line extension south of the has brought intense interest to the Southbank, and further along the jubilee line to Canary Wharf. Many foreign investors have bought into the regeneration of Dalston, and the East London line extension. They also like to purchase near well known landmarks such as ‘St Paul’s Cathedral’, ‘The City’ or the River Thames.
“Investors are primarily looking for capital growth with an increasing number also looking at income returns. Asian investors are shrewd, and much more sophisticated in their research than they were just five years ago; they want detailed insight on the market and locality of the property / properties they are purchasing. New build developments prove attractive as they offer high quality security, facilities such as gyms and restaurants, services such as concierges and secure car parking.
“In the past 12 months Knight Frank’s experience has shown a change in buying power with Asian buyers looking at more upmarket quality product. In 2007 exhibitions in Asia were focused on smaller affordable units but now demand is for more spacious one and two bedroom apartments priced from £400,000 to £800,000, if not more.
“Canary Wharf is now established as one of London’s main locations for residential investment. Pan Peninsula, one of the tallest residential developments in Europe located close to Canary Wharf’s hub, has been incredibly popular with investors in the Far East. It has been one of the most successful campaigns ever in Hong Kong and Singapore, with 110 units selling at prices from £250,000 to £4million. Sales were at an average of £800 per square foot.
“Chinese buyers were attracted to the waterside location, which has very good Feng Shui connotations, and the iconic nature and height of the development. The proximity to the financial centre, Jubilee Line and on-site facilities such as the concierge, gym, spa, private swimming pool, on-site cinema and sky high cocktail bar were also attractive features.”
Power shifts
Bailey concludes: “The West to East shift in power has had a tremendous influence, it is not just a corporate and government trend, but now is tangible at a personal level, the purchasing power of an Asian buyer is far greater than UK buyers – the UK resident is suddenly 30% poorer against an Asian resident. We anticipate inward investment continuing as the Sterling exchange rate is still likely to provide a key driver for international purchasers into 2011.”
For further information, please contact:
Liam Bailey, Residential Research, Knight Frank, +44 (0)7919 303148 liam.bailey@knightfrank.com
Seb Warner, Residential Investment, Knight Frank, +44 (0)20 7861 5447 seb.warner@knightfrank.com
Tania McNally, Press Office, Knight Frank +44 (0)20 7861 1068 tania.mcnally@knightfrank.com
