Friday, April 13, 2012

Why Asians love to buy London properties - they can't wait to get a piece of it


During a recent trip back to Singapore, I couldn't help but notice a number of London properties being advertised on Straits Times (the local main newspaper). What I found interesting was that they are no longer properties in Greater London (often depicted with a view of Canary Wharf's One Canada Square). These are right smack in Central London.

Instead of being held at shopping malls, London properties launches are being held at glitzy hotel function rooms. With throngs of prospective investors, the sales people are often so certain that the properties will fly off the shelves that they no longer entertain those with a whole host of questions. With people, many of whom cash buyers, literally throwing them blank cheques to secure desirable units, they can hardly be blamed.

Previously, the London properties marketed in Singapore or China, Hong Kong, Malaysia and Indonesia for that matter are those rejected by Londoners. There's no point selling them overseas if there is a local demand, is there? That's no longer true. With the myriad of London properties being launched overseas first, foreigners are having the first bite of the cherry. A property developer told me this of a King's Cross development - "There are 94 units in all, 70 units were sold in Hong Kong over a week (that's just five weekdays), 20 sold in Singapore over the weekend and the remaining four are then sold in London".

So why is there a mad dash to secure a London property? Here are four main reasons.

1. Low local interest rates

Viewed as financial safe havens, Singapore and Hong Kong are flooded with foreign capital. As a result, the interest rates are at an all time low with rates barely touching one percent for a one year fixed deposit. The same applies for unsecured loans - the main Singaporean banks are extending loans of £10k at less than a percent interest for those with excellent credit ratings.

With such low interest rates, it's no longer economical to hold cash. A piece of real estate in London, also deemed as another safe haven, is an attractive alternative. Further, with an expected gross return of around five percent, it's a no brainer.

2. Favourable exchange rate

The sterling pound has lost more than 30% of its value against most major Asian currencies since 2007. While things aren't looking bright for the UK's economy, there are indications that the slide has somewhat abated. Those looking to buy at "the bottom" would be jumping onto the bandwagon before the train leaves the station.

3. The pull of London Universities

UK universities no longer dominates worldwide university ranking tables. In fact, only Cambridge, Oxford and University College of London count among the top ten according to Times Higher Education. Even then, London universities including London School of Economics, University College of London and Imperial College of London still hold considerable pull. Even Oxford and Cambridge (the two favourites) are just over an hour's train ride away from London.

Getting a property in Central London is often viewed as an investment just so that their children wouldn't have to go through the hassle of hunting for accommodation with the rest of the other students every September when the term starts.

4. Length of leaseholds

Due to land scarcity, most if not all of the new developments in Singapore is sold on a 99 year leasehold. New London properties, on the other hand, are going for at least 125 years with some going up to 999 or even freehold. In fact, UK banks are often unwilling to finance mortgages on properties with less than 60 years of leasehold left so properties' values plummet once their leaseholds dip below 80 years. Although the context is different, the difference in leasehold terms is a key consideration.

Looking at the crowds attending London property launches held in Asia, the trend is likely to continue for some time. With huge influx of cash on easy credit, Londoners are feeling the squeeze not only when purchasing their own home but also when renting the accomodation (see London Accommodation Guide).

Did I miss out any points? Also check out the 5 common mistakes when buying London properties from overseas.

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