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The Asian Invasion

publication date: Jul 1, 2010
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Knight Frank’s new international investment report says that Asian Investors are now buying more than 20 per cent of all central London new-build properties and now account for 49 per cent of all investment purchases in central London; compared to only 36 per cent purchased by UK investors.

Liam Bailey, head of residential research, Knight Frank, said, “The revival of international investment demand for new-build property has been one of the most remarkable features of the residential property market over the past 18 months. While the market has returned to life, after it pretty much shutdown in 2008, current international investment demand is almost totally concentrated on London and is primarily coming from Asia.

“Of the 7,595 new-build properties completed in the 12 months to March 2010, 41 per cent of these were bought by investors rather than owner occupiers.
“Forty-nine per cent of all investors in the 12 months to March 2010 were Asian. Knight Frank estimates that over the last 12 months the total volume of Asian investment has totalled £761 million.”

While the weaker pound has created a compelling buying opportunity for Asian investors, overseas purchasers buy property in the UK for a number of reasons but in almost all cases they are looking for a secure return on their investment. The interaction of currency movements, strong capital price growth and, rising rents, have created an attractive investment case for central London.

“Despite prices rising by 22 per cent in the 14 months up to the end of May 2010, effective prices in central London were still 32 per cent lower compared to their peak March 2008 level for a purchaser looking to buy in Hong Kong dollars as a result of currency movements. Rents in London have been rising since June last year and high demand has meant lower void periods. The problem for buyers looking to secure stronger investment yields has been that capital growth has outstripped rental growth in the past year and yields are being squeezed further. For new build properties a gross yield of above five per cent is rare.

“Chinese buyers in particular are keen to spread their exposure and invest in markets they regard as more secure than their own if they can get through the regulatory minefield and release the funds. In mainland China, local investors have become more nervous about keeping money in their own country after outstanding credit rose by 30 per cent and at least seven Chinese cities saw their new home prices surge more than 50 per cent over the 12 months to March 2010. The Chinese have built a reputation as strong savers and investors, the rise in domestic property prices since house ownership was legalised in 1998 has encouraged a strong belief in bricks and mortar investments.

EDUCATION IS A DRAW

Liam Bailey“We cannot underestimate the role of UK education in encouraging inward investment into London; over the past decade the number of Asian students studying in UK universities has risen by 175 per cent. The strongest growth comes from Chinese, Indian and Pakistani nationals. The number of Chinese studying in the UK rose from 4,017 in 1998/99 to 47,035 in 2008/09. In many cases Asian investors look to buy to cover the period of their child’s university duration and then retain as an investment.

Sebastian Warner of Knight Frank’s residential investment team commented, “Asian investors focus on good location, favouring zone 1 and 2 and generally demand that they are very close to a tube station. The prospect of a new underground station can attract investors to previously less fashionable postcodes. The jubilee line extension south of the river has brought intense interest to the Southbank, and further along the jubilee line to Canary Wharf. They also like to purchase near well known landmarks such as St Paul’s Cathedral and The City.

“Canary Wharf is now established as one of London’s main locations for residential investment. Pan Peninsula, one of the tallest residential developments in Europe located close to Canary Wharf’s hub, has been incredibly popular with investors in the Far East. It has been one of the most successful campaigns ever in Hong Kong and Singapore, with 110 units selling at prices from £250,000 to £4 million. Sales were at an average of £800 per square foot. Chinese buyers were attracted to the waterside location, which has very good Feng Shui connotations, and the iconic nature and height of the development. The financial centre, Jubilee Line and facilities such as the concierge, gym, spa, swimming pool and sky high cocktail bar were also attractive features.”