London property bubble? Singapore investors unfazed

Fears have emerged that a bubble has formed in the London property market after prices rose to levels not seen since before the global financial crisis, but that is not deterring Singaporean investors who are attracted by the city’s global appeal and a favourable exchange rate.

Official data released last week showed that London house prices rose by 8.1 per cent in a year to record highs, pushing the average cost of a home in June to £425,000 (S$845,000).

Part of the reason for the sharp increase is that foreign investors have been piling into the market: According to a recent report in the Financial Times, overseas buyers accounted for nearly three-quarters of new home purchases in central London last year, with more than half the homes sold to buyers from Singapore, Hong Kong, China and Malaysia.

That demand is set to continue even though warnings have started to emerge that a bubble may have formed, said OrangeTee’s Head of International Projects, Mr Jonny Chng.

“For now London still remains attractive, as the city is one of the core global markets. But buyers will have to keep a track of price movements — in fact a lot of the areas in the city are already recording new benchmark prices,” he said.

But with the pound set to remain weak for the foreseeable future after the Bank of England signalled interest rates will not go up until unemployment comes down sharply, Singapore property investors are likely to continue to see potential in London, said CBRE’s Associate Director for Research Desmond Sim.

“With the pound not doing very well, London has been attractive for Asian liquidity due to favourable exchange rates,” he said.

“It’s also a good investment because London is a large metropolis and a global hub for education, and that should ensure demand remains strong.”

Nevertheless, buyers should tread carefully as some parts of London offer better returns and lower risk than others.

London’s offerings outside the prime central areas are actually cheaper than those in the equivalent Singapore zones, Mr Sim pointed out.

“The 4 to 5 per cent rental yield is also higher than the 2 to 3 per cent here,” he said.

“My advice is to look at what zone you’re buying. The prime areas in the central zones are very expensive, but the upper mass-market properties slightly further out are competitively priced,” he added.

International Property Advisor Director Ku Swee Yong, who agreed, sees minimal risk of a London property bubble.

“In Zones 3 and 4, which are still well-placed but a little outside the central area, you can still see prices at around £300 to £400 (S$596 to S$794) per square foot,” Mr Ku said.

“These are freehold private condominiums that are only slightly more expensive than our HDB flats. So, unless you’re going for the most luxurious segment, I don’t think there’s a bubble.”

In fact, with strong foreign demand unlikely to diminish in the near future, Mr Ku is forecasting an upside potential of 20 to 25 per cent over the next five years.

However, if the growth momentum does not recede, the British government may introduce property cooling measures — a scenario Singapore investors should take into account, said OrangeTee’s Mr Chng.

“The British government has actually been doing that already. In March last year they announced a 7 per cent stamp duty charge for properties over £2 million (S$3.9 million). So potential buyers have to reckon that there might be further measures in future,” he said.

But major regulatory changes are unlikely for now, said CBRE’s Head of International Project Marketing Darien Bradshaw.

“The issue in the United Kingdom now is that housing construction is lagging behind population growth — they’re simply not building enough apartments. So any property cooling measure will be very unpopular for any government. I just don’t see that happening,” he said.

Source : Today – 19 Aug 2013

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