London homes a draw as prices stabilise lower

There are indications that buying a flat in central London is fashionable again, despite these anxious times.

After many months of negativity, April sales of off-plan London apartments in Hong Kong road shows far exceeded expectations.

Real estate experts say these sales are driven by Hong Kong-based parents for their university-bound children, or for children who are new graduates and starting their first job in the capital.

Foresight among local parents also means some buyers are purchasing flats for their 11- or 12- year-olds, who are just starting boarding school, in anticipation of pursuing a university degree in London. They use them as a pied-?-terre during visits, or rent them out until needed.

The number of Hong Kong students in British schools has risen for 2009-2010, having dropped in recent years, with roughly 9,200 expected. While this number includes more than 5,500 students in boarding school, many need a place to live, or a place for their parents to stay while visiting.

Property prices are down about 17 per cent from the peak of 2007, and that and a weak sterling mean conditions are good for foreign buyers. A 35 per cent savings in currency fluctuation means an effective saving rate of 52 per cent since the peak.

Darien Bradshaw, regional director, international properties at Colliers International, said: 'This is the best time in the past 10 years that we can remember, in terms of major price correction and currency, to buy in London.'

Low stamp duty and easier availability of financing for Hong Kong-based buyers give London properties the edge.

Silkworks is a new construction project in Lewisham in London's Zone 2 and within commuter distance of universities. The development launched in Hong Kong last month and, according to selling agent King Sturge, more than 500 people attended the exhibition, twice as many as expected and triple the expected sale result.

This was not an isolated case. Last month Colliers launched the off-plan project Union Point, in Clapham. Every flat sold. A substantial portion was to Hong Kong parents for their university-bound children, who are especially pleased that the project is a reasonable distance from Imperial College in South Kensington.

'It's no fluke that developers are starting to come to Hong Kong. They know demand is here,' Mr Bradshaw said.

There is an added bonus of there being no restrictions on foreign buyers and no capital gains tax when it is time to sell.

You can also offset rental profit tax and other outgoings against your mortgage repayments. And, with increases in London's population not keeping up with new housing starts, it looks like property demand will be high in the coming years.

Properties with the best investment potential are one-bedroom and two-bedroom apartments near central London and public transport links. These are the types of units most favoured by university students and young professionals.

Popular areas include those within a few underground stops of South Kensington, near Imperial College, and Russell Square, near the University of London, London School of Economics and King's College.

Buying off-plan in these areas suits Hong Kong families as first-year university students usually live in the residence halls. This means parents need only put down a 10 per cent deposit in the first three months and have reassurance that they can get financing by the time of completion, when the student is also ready to move in.

As a result of the recent stellar sale of Union Point, the developer was able to secure financing from the Royal Bank of Scotland and construction begins this month.

When that project sold out, Colliers International directed clients to another project due for completion at the end of the year - Dalston Square. It is being built over a new underground station to be completed next year, four stops from Russell Square. The agent sold eight units without advertising the sale, and two buyers, 'definitely had education on their agenda', Mr Bradshaw said.

Most buyers were looking for one-bedroom and two-bedroom apartments for their children. The prices were hard to beat. A Silkworks studio suite started at GBP119,000 (HK$1.37 million), meaning no stamp duty was required.

King Sturge Shanghai director Mei Wong said that most buyers were looking in the HK$2 million range but preferred to spend HK$1.8million using the remainder for educational funding. In many cases buyers were so price sensitive they chose lower floors to save GBP3,000.

Less attractive to 'parental investors' are three-bedroom units, which typically have a lower rental yield and are better suited to owner-occupiers.

Mr Bradshaw said: 'Three-bedroom apartments are harder to sell, but see more capital appreciation.'

The reason for the larger appreciation is that developers purposely give larger flats the most desirable views. This sweetener prevents developers being left with a stock of three-bedroom flats.

Outside London, investors buying for their children or to rent to students have also found success in Cambridge, Oxford and Kent.

The investment potential of property in Britain may offer a glimmer of hope in an otherwise uncertain market, but it is important to consider the risks of further falls in sterling and more job losses.

But, refreshingly, with the strong sales achieved in Asia last month, many potential investors believe the London market has reached the bottom, according to Mr Bradshaw.