London calling

December 9, 2011

Amid the global financial turmoil and associated property downturn, London is perhaps one of the few remaining bright spots. Investment funds pour into this financial hub, now a safe haven for capital from all over the world. The rollercoaster ride of the worldwide equity markets stemming from the Euro crisis has sent shockwaves through most western economies – and caused jitters in Asia as well, resulting in the withdrawal of capital, some of which is finding its way into mature, stable real estate markets like London.

While real estate markets in most developed economies, including Hong Kong, are suffering from weakened demand, central London has bucked the trend to record price growth, and the escalation is expected to continue thanks to overwhelming demand from Russia, the Middle East and Asia. Buyers compete for high-end residential property in the British capital, where, due to strict town planning rules, most old buildings (dating back decades or even centuries) can only be renovated internally without increasing the floor area, thus limiting the amount of new space coming to the market. Prices in central London are on par with Hong Kong, a city itself world-famous for expensive residential properties.

London is particularly appealing to international real estate investors because of its excellent legal system, highly transparent market, well regulated service industry and potentially huge market, vital to maintaining a high level of liquidity. The pound sterling, among its other merits, also plays an important role when the Euro is in deep trouble. This effective ‘firewall’ has been an added advantage of investing in London properties.

Across the spectrum of properties in London, retail and high-end residential top the shopping list of many foreign investors. The city has always enjoyed a bustling retail market as one of the world’s top tourist destinations. Retail shops generally produce attractive yields with long leases, so the security of income is guaranteed.

End users compete with investors for high-end residential in Central London citing, among other things, the relative tranquility of residential neighbourhoods compared to other world cities. Top standard hygiene and cleanliness of streets are among the merits.

Residential properties here also provide flexible lease terms from weekly to yearly. In single-let houses, the landlord can rest assured the property will be taken care of by the tenant under full repairing and insuring leases. There are also tax exemptions and reductions in place for foreign owners.

For many Hong Kong investors, London has a special appeal; the territory’s 150 years of British colonial history has fostered a close relationship between the cities. Under the old British rule, local civil servants’ children were subsidised by the government for UK education. Today, Britain is still the most popular overseas education destination for Hong Kong students. Well-off parents will spare no expense in buying property for their children’s use and for future investment in London. Familiarity with British culture also encourages many local investors to make the foray into London’s property market.

As the Euro crisis still shows no sign of abating, and with the world economy heading into recession, capital around the world will continue to look for safe havens. With its special charm, London will hold its place at the top of the destination list for years to come.

By Koh Keng-shing