Chinese can move prices up 15% in London

The Edge Property – 17 February 2012

LONDON : Chinese investors can lift London residential property prices by 15% had there been no restrictions imposed on capital flows out of China, according to global real estate services provider Savills plc.

In a recent presentation to Southeast Asian journalists, Savills director of research Yolande Barnes said Chinese buyers have emerged as property buyers in the city, especially in the newer redeveloped areas in London Docklands.

However, they are not the only foreign investors flocking to London to snap up properties.

“The big spenders are investors from the Middle East and ex-Soviet Union buyers, Asia-Pacific is relatively close but everybody spends more than the Brits,” she said.

From the Asia-Pacific region, the strongest buyers for London property have traditionally been from Hong Kong, Singapore and Malaysia.

“We haven’t seen a lot of Chinese running into London to buy property but you do see some of them feeding their money through the Hong Kong and Singapore stock exchanges to get their money out to purchase property in the UK,” said Ned Baring, associate director at Savills.

Barnes also noted the strong correlation between the number of new billionaires created globally and the increase in property prices in prime central London.

Barnes also noted the strong correlation between the number of new billionaires created globally and the increase in property prices in prime central London.

“But the new Chinese billionaires are not getting their money out. If the Chinese billionaires could get their money out of China and if they wanted to buy in London, they have the power to move prices by up to 15%,” Barnes said. Certainly, in expanding its customer base, Savills will be tapping Chinese and Indonesian buyers.

“Asian buyers in London are more savvy and a lot more educated and sophisticated than 10 years ago,” Baring said. Most of these buyers are individuals although strong institutional interest in commercial property has emerged.

London has always been a favourite for international property investors. In the 1970s, the oil money from the Middle East snapped up properties in the city, the 1980s saw Americans followed by Asians in the 1990s.

More recently, the post-2008 boom was driven by a cheaper pound and safe haven buying by investors who see London property as a reliable store of wealth in times of uncertainty in the financial markets.

“We’ve always had Western Europeans coming to London and Americans have been here a long time, we’re waiting for the South Americans who have been reported to be active in Miami, Los Angeles and New York. It’s a question of when they are coming here to London,” she added.

In 2011, the prime residential markets of London registered an annual price growth of 8.7%. Prime central London’s (PCL) property market saw prices rise 14.1% last year compared with 18.6% for the ultra prime segment, where values typically exceed £15 million (RM72 million) and overseas demand is strongest.

For 2011, the ultra prime segment achieved record sales in excess of £1.9 billion. One example is One Hyde Park, an ultra prime residential development in Knightbridge where the highest price for a UK residence was paid last year. According to media reports, two units were bought for £135 million by Ukraine’s richest man Rinat Akhmetov last year.

According to Savills, which is handling the sales, the price worked out to £7,500 psf. In the PCL segment, international buyers accounted for 55% of sales in 2011 and introduced £4.3 billion of new equity into the market during the year, according to Savills.

European buyers’ share of the market rose from 13.2% of sales in 2010 to 19.5% in 2011, compared with the Middle East’s increase from 7.6% to 8.5% over the same period.
For this year, Savills is expecting a modest growth of 3% for the PCL segment against -3% and -2% for the UK’s prime and mainstream markets. Price growth for PCL will be driven by continued international demand and constrained stock levels.

“In general, the UK property market is not bullish at all, but London still looks bullish — this is going to go on as long as overseas buyers keep coming,” said Barnes.
The overall UK market is expected to be constrained by a reduction in loan-to-value from 95% to 75% for first-time buyers starting this year. This will limit accessibility as first-time buyers will now have to come up with a higher deposit.

“The accessibility issue is reason why transaction levels will be low. People can’t enter the market, so they are renting rather than buying,” Barnes explained. For this reason, Savills sees rental values growing at a faster rate than capital values across the UK in the near term.

The real estate agent expects rental values to rise 20.5% between now and 2016. Expectations of falling prices amid the ongoing eurozone crisis and rising unemployment, are also expected to make potential buyers sit back and wait before making a purchase.

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