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  1. Wealth
November 14, 2012

Private banks need to prepare for Asian property-buyer influx

By Spear's

With Chinese buyers spending an average of £6.5 million on a prime London property, why aren’t more British lenders rushing to help them, asks Hugh Wade-Jones of Enness Private Clients

With Chinese buyers spending an average of £6.5 million on a prime London property, why aren’t more British lenders rushing to help them, asks Hugh Wade-Jones of Enness Private Clients
DESPITE RUMOURS OF vast wealth from the East, Asian buyers have gone under the radar somewhat as Russian oligarchs have continued to dominate the headlines. When talking volumes, this trend is most certainly true with Chinese buyers only making up only 2 per cent of the London market by volume compared to 6 per cent from Russia. 

That said, before top-end agents continue to fine tune their Russian at the expense of their Cantonese, the average purchase price for a Chinese buyer in the super-prime bracket is £6.47 million – over a million pounds more than the average spend by a Russian buyer. Considering that Chinese buyers still have huge issues getting their cash out of their home country this is an astonishing statistic.

Read more: Asian superwealthy optimstic amid global uncertainty

Such is the anticipation of a large influx of Eastern money into London that Selfridges have recently installed cash machines which accept Chinese bank cards and Harrods is teaching all its staff Mandarin and Cantonese.

The wealth management divisions of Asian banks are reporting brisk business in setting up mortgage facilities for property purchases. The term is usually three to five years on an interest only basis and renewable annually after that. Interest rates are set on a case by case basis in accordance with the overall wealth of the individual and not the standard drivers of income, loan to value and the like.

“Many wealthy people may want to maintain their liquidity rather than just applying it to the real estate assets, as liquidity allows them to take advantage of investment or business opportunities that may arise,” said Michelle Tan, head of real estate product management at Bank of Singapore.

Given the low interest rates in the region, it makes sense for clients to borrow against property and use the cash for investments to generate higher returns, said Yves-Alain Sommerhalder, head of ultra-high-net-worth solutions at Credit Suisse’s private banking operations in the Asia-Pacific region.
IT’S ALSO INCREASINGLY to do with the UK’s desirability to international students with HNW families from around the world insistent their children be educated, in some part, in the UK. In a recent report, the real estate consultants Jones Lang LaSalle highlighted this growing breed of wealthy property investors whose purchasing decisions had been driven by familial and educational ties.

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“Asian buyers like to educate their children in the U.K. and will often buy a property rather than rent,” said Camilla Dell, managing partner of Black Brick Property Solutions, an independent buying agency in London. Her Asian client base has quadrupled in the past two years alone and now represents about 20 per cent of the total, she said.

“Property is viewed as a safe haven, and the weakness in sterling against Asian currencies is also a key driver.”

Read more: Luxury property in China – boom, but at what cost?

Despite offshore and foreign banks keen to get involved in the London property market, many UK-based banks and lenders still make life difficult for Asian buyers unless their money is held in other offshore jurisdictions. Even the emergence of Bank of China has hardly greased the wheels of lending. My guess, however, is as the rules relating to taking money overseas relax and the next wave of aspirational buyers emerges, lenders will have to alter their stance.

A cautious approach to lending in the current economic environment is understandable but my guess is that 2013 will see Asian buyers become the dominant power in the London market so there is a huge opportunity for sophisticated and forward-thinking lenders.

Hugh Wade-Jones is managing director of Enness Private Clients

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