Hong Kong owners reap British rental rewards

PUBLISHED : Wednesday, 13 July, 2011, 12:00am
UPDATED : Wednesday, 13 July, 2011, 12:00am

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If Britain has entered an age of austerity, London's landlords may want more of it, since rents in the capital are at record highs. And among the beneficiaries of those rents are Hong Kong investors, who have bought heavily in Canary Wharf in particular, where rents are rising strongly.

Research from estate agency Savills shows rents in London's prime residential districts rose 10 per cent over the past 12 months, and now stand 4 per cent above their 2007 peak. Most growth has been in prime areas bordering central London. In Regents Park and St John's Wood rents are 20 per cent higher than four years ago.

Across the board in all prime areas, rents for flats are now 4.9 per cent above 2007 peak levels, compared to 2.1 per cent for houses, reports Savills. Average yields for 'des res' homes are flatlining at 3.8 per cent gross, as capital growth has kept pace with rent rises.

The agency forecasts rents will rise 8 per cent this year.

Hong Kong landlords benefited from rising rents. They bought one in 11 new homes sold in prime London areas over the past four years, Savills said.

'With rents rising over the past 12 months and forecast to continue to grow, investors stand to see healthy yields in the future, as well as benefiting from positive cash flow, with mortgages currently being offered to foreign investors with low interest rates,' said James Thomas, international sales director at Savills.

According to Savills, one third of Hong Kong and Chinese investors in prime London areas bought in Canary Wharf between 2007 and this year, where rents rose 11.6 per cent over the past year, rebounding from a sharp downturn during the recession. The agency combines Hong Kong and Chinese buyers, because some mainlanders buy London property at sales exhibitions in the city. Kensington, Wapping, Chelsea, Battersea, and Clapham are other areas targeted.

Marc von Grundherr, director at letting agents Benham & Reeves, said rents were rising because tenant demand outstripped supply.

'We have 12 tenants for every property,' said von Grundherr. 'Tenants are extending their leases even with double-figure increases in rents because they hear how difficult it is to find new homes.'

Grundherr said rising financial services employment, increased immigration and frustrated first-time buyers needing to rent were all pushing up tenant demand, while low rates of house-building meant supply could not keep up.

The lettings boom has spread to secondary markets like King's Cross, Stratford, and Southwark, said Neil Young, chief executive at letting agents Young London. Stratford has been popular with some Hong Kong investors. 'We find that annual rental increases of 10 per cent upon renewal are not uncommon or confined to what is traditionally regarded as prime central London,' said Young.

Robert Hadfield, managing director of investment property management company Pineflat, said yields were higher and void periods shorter for secondary market rental properties in London.

Young said a downside of the rental boom has been an increase in tenants not paying rent and letting agencies mismanaging properties. 'Investors are warned that there has been a recent upturn in rent arrears and also complaints regarding lettings agencies to The Property Ombudsman Service,' he said.