Tuesday, 18 June 2013

On Top of the World

It’s almost as if the financial crisis never happened. According to Jones Lang LaSalle, new-build sales and construction activity in central London has returned to post-crisis peaks. Overseas buyers have been central to this. Knight Frank research revealed overseas investors piled a whopping £2.2 billion into new-build residential property in central London during 2012, making the Capital the most popular city in the world for new-build investment.

Amidst the financial and political turmoil that rocked the globe over the last four years, London residential has been viewed as a rare safe haven; a market that is transparent, liquid and politically stable. So why is central London so popular with Asian investors in particular?

Charlie Walsh, Associate Director of International Residential at Savills, explains: “More people looking to rent and a shortage of supply have contributed to strong rental growth which cash-rich investors have looked to exploit. At the same time, the weak pound has enticed Asian buyers. Meanwhile, buyers that are not a tax resident in the UK do not have to pay Capital Gains Tax when they sell.

“Government policies aimed at cooling overheating markets in China and Singapore has also encouraged investors to look at London. In Singapore buyers now have to pay 18 per cent tax on purchases, much higher than the seven per cent top Stamp Duty rate in the UK.”

Neil Batty, Head of International Project Marketing at Knight Frank, adds: “New-build developments appeal to buyers who are comfortable buying off-plan so the fact that it’s common practice in the likes of Hong Kong, Singapore and Malaysia certainly helps. London also offers a complete range of services: lettings, property management and furnishing so distance doesn’t matter.”

“Our continued presence in South East Asia makes it easy incredibly easy for overseas purchasers to get the right level of customer service allowing us to cater for their every need, whether the property purchase is for investment, a home for the children whilst at university or a pier-de-tere. Buying off-plan at exhibitions is really straightforward; everything is provided.”

Charlie adds: “Buyers’ and sellers’ lawyers are present, often paid for by the developer, and after the purchaser has spoken to us and the furnishing people, within four hours they’ve exchanged.”

“The recognition that London continues to offer world-leading educational and cultural facilities has also been important to Asian buyers”, says Neil. According to Knight Frank research, a third of investors buying off-plan buy with their children’s education in mind.

“Many of our Asian owner occupier clients plan to use the property when they visit their children”. “It also becomes a place for their children to live if they decide to go to a London university.”

The surge in Asian investment has enabled David Phillips to increase turnover to from £6 million in 2007 to £22 million this year. Chris Martin, Sales Director at David Phillips, comments: “Around 75 per cent of our new-build clients are from Asia. Many of them buy off- plan at exhibitions in Hong Kong, Singapore and Malaysia without ever visiting the development in person and need someone based locally to furnish their investment. Rental properties can be offered unfurnished but I’d say that approximately 90 per cent of London is a furnished market. Because of this, tenants expect properties to be furnished and landlords need to meet this expectation if they want to avoid longer void periods.”

Rapid growth of central London’s residential market has led some to question whether a bubble is forming, especially since the UK narrowly avoided a triple-dip recession. Yet – London it seems is in a class of its own. “London is a city of wealth and wealth attracts more wealth,” says Charlie. ONS figures show that London’s economy has risen much faster than other regions; 12.4 per cent between 2007 and 2011 compared to between 2.3 per cent and 6.8 per cent across other UK regions. Employment rates have fared better too. London has added over 267,000 jobs over the last five years while the rest of the UK lost jobs. Meanwhile, average income is now 30 per cent higher in London than the rest of the UK.

That said, higher prices and lower rental price growth in central London may concern investors. “Given the tighter yields, it will become increasingly important for investors to maximise rental income”, says Chris.

“Low cost, high-end furnishing improves return on investment as well as the quality of tenant, which often reduces maintenance costs. Our relationship with developers also means we can coordinate the furnishing of new developments within 48 hours of completion so tenants can be brought in straight away.”

However, with bond and stock markets also seeing lower yields, property remains attractive, particularly to overseas buyers who face the prospect of tax free capital growth. “Yields may be lower but prospects for capital growth, particularly in areas where yields are tightest, are very good”, says Charlie. So – on balance – central London residential remains an attractive proposition. Long may London stay on top.