Concrete Analysis

UK election no distraction for Hong Kong homebuyers

Interest from overseas continues to heat up, and judging by the mood among Hong Kong buyers, the British election simply does not matter

PUBLISHED : Wednesday, 22 April, 2015, 12:23am
UPDATED : Monday, 04 May, 2015, 11:28am

Britain is gripped by election fever, with the widest field in living memory captivating an electorate who had become disillusioned by politics and politicians.

The Liberal Democrats, UK Independence Party, Scottish National Party, Greens and Welsh Nationalists are all winning votes at the expense of the traditional big guns, the Conservative and Labour parties.

But judging by the mood among Hong Kong buyers of London residential property, the election matters not a jot.

Because far from the slow unwinding of the bull market we have been experiencing for three years, interest from overseas buyers in London property is continuing to heat up.

The election and the prospect of a mansion tax on properties worth more than £2 million (HK$23.2 million) by Labour's left-wing leadership is having an effect on the very top end of the market. And some estate agents have reported slowing sales in the second-hand homes market, but Hong Kong buyers with their very specific requirements are continuing to buy big.

Let me explain.

Hong Kong buyers are acquiring property in London, having been influenced on several levels:

They are buying for the long term. A buyer could secure a better yield on residential property outside London because it is less keenly priced. But, sensing long-term capital growth Hong Kong buyers continue to bet on the capital.

To achieve capital growth Hong Kong buyers are avoiding London's "super-prime" postcodes of W1 and SW1. They are more interested in locations on the fringe of "Zone One" - the area on the Tube map encompassed by locations a mile or so from the city centre.

So places like Wapping, on the Thames just to the east of the City financial district, or Nine Elms, just across the river from Belgravia, have a particularly strong appeal. City Road, between the City and Islington, also appeals strongly to Hong Kong buyers.

Hong Kong buyers are also continuing to buy in London to help educate and house their London-based student offspring.

While Russian or Middle Eastern investors in London like to keep a low profile, buying property in London is a prestigious affair among the people of Hong Kong.

Visiting exhibitions with a group of friends and comparing London apartments has become part of the local culture.

At the same time, buying London property at a Hong Kong exhibition has become a key part of the weekend for many driven, ambitious people. Sunday brunch or lunch followed by a visit to a top hotel to view property is fun for people who are very similar to modern Londoners, with a shared sense of aspiration and respect for commerce and the legal system.

Once they have decided to buy London property, Hong Kong buyers are employing two tactics: Some buyers choose to put 20 per cent of the value of a property down as a deposit, confident that when they come to pay the 80 per cent balance they will have seen it grow in value appreciably.

CBRE is forecasting that London real estate will grow in value by at least 5 per cent per annum for the next five years, driven mainly by demographic imbalances and a shortage of supply.

Other buyers are taking a more short-term view: snapping up property in Zone One or Zone Two before the election because they perceive bargains. Certainly some British buyers are currently hanging back from buying to see the outcome of the May 7 poll, allowing overseas investors who are less fazed by short-term political issues to step in.

They will be encouraged by new CBRE research which shows that a 40 per cent premium on rentals can be achieved on new-build property compared with second-hand homes, as the rental market becomes more discerning in London. With the capital growing as a global hub, the standards demanded of rental property are rising, but good facilities and an excellent concierge service will guarantee a home bought as an investment is leased almost as soon as it is completed.

One area where interest in London is not so keen so far in 2015 is from Singapore.

Government intervention to cool the domestic market through a cap in the debt income ratio led to a halving of transactions in Singapore in 2014 and a subsequent curtailing of this group of investors' ability to buy in London.

But for Hong Kong buyers the coming weekend is likely to involve another round of visits to the best hotels as they continue to back London as the global hot spot for real estate capital growth.

Mark Collins is chairman of Residential UK at CBRE Group