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Brexit uncertainty an opportunity for overseas investors

A sharp drop in the UK currency means greater affordability for foreign buyers

PUBLISHED : Tuesday, 12 April, 2016, 5:41pm
UPDATED : Tuesday, 19 April, 2016, 9:58am

Property investments in London are likely to attract more Hong Kong buyers as Britain decides whether to stay in the European union.

The UK’s potential exit – termed Brexit – from the European Union has driven sterling to lows not seen since the financial crisis of 2008.

Britons vote June 23 on a referendum on whether to stay in or leave the 28-member group of nations which extends from Finland to Cyprus and Romania to Portugal.

Since 2008 the pound has lost almost a third of its value against the US dollar, recently buying US$1.41 (HK$10.94). The Bank of England also linked the Brexit uncertainty to the currency’s recent volatile movements in its latest policy meeting in March.

Nomura, Japan’s top investment bank, predicted that the British currency could fall a further 15 per cent in the event of a Brexit.

Despite the pound’s instability, property prices in central and greater London are still rising, although the pace has slowed.

Property prices in central London have risen by 1.9 per cent in the past 12 months to the end of March, while those in outer London were up 3.9 per cent for the year, according to real estate agency Jones Lang LaSalle (JLL). The pound has fallen by 10 per cent against the US dollar from its peak in June.

Mark Elliott, associate director of international residential property services at JLL, said currency movements do not necessarily have an immediate relationship on property prices, and investors are not concerned as the Brexit vote looms.

“[They] are not concerned and rightly so as demand is still there as is a huge undersupply,” said Elliott.

Elliott pinpointed HSBC’s decision on keeping their headquarters in London in February after a 10-month uncertainty as a “huge confidence boost” to investors.

“I think a lot of buyers are following the lead of the due diligence [HSBC and many other blue chip institutions] must have done,” said Elliott. “Coupled with a weak pound there is still some great opportunities and I think Hong Kong is educated enough on London to understand that and capitalise.”

Black Brick, a UK-based agency with 60 per cent of its buyers being international, said Brexit could pose as an opportunity for overseas buyers.

“In Knightsbridge prices are more than a quarter lower in dollar terms than they were 18 months ago,” said Camilla Dell, managing partner at Black Brick in a market commentary, referring to a residential area in central London.

“Opportunity is the other side of the coin to crisis...it’s certainly tempting some overseas buyers back into the market.”

UK property has always been a popular investment in Hong Kong given its comparably low tax rate, according to JLL. Before the UK’s stamp duty hike that came into effect this April, foreigners had to pay a stamp duty of 4 per cent in the UK, while it was 8.5 per cent in Hong Kong.

JLL launched 30 overseas exhibitions in the city last year to attract local buyers, with all but three of the residential projects being in the UK.

Their research showed that the capital value of residential property in greater London has outpaced the market in the city centre, growing at an average of 7.3 per cent every year compared to central London’s 6.9 per cent.

May Chan, 53, who lives in Hong Kong, said the value of her two-storey house on the outskirts of the British capital rose 10 per cent to 220,000 pounds since she bought it in 2014.

A few months ago, she increased the monthly rent by 21 per cent on the advice of her real estate agent.

“It has quite a good return rate. You wouldn’t be able to get that kind of interest by leaving the money in the bank,” said Chan.

Chan, who plans to use the house as a retirement home in the future, said she is not worried about the prospect of a Brexit.

“We don’t even know if Britain is going to leave the EU or not right now. If prices really fall, I can just charge less rent,” said Chan.

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