UK homes draw Asian investors amid price boom, undersupply

Singapore

THE UK residential property market is back to drawing individual investors from Singapore and the rest of Asia, having been roused from a deep sleep caused by pandemic lockdowns, property lawyers and analysts said.

London, in particular, seems to be in no danger of losing its lustre, as foreign buyers again look to the city amid a turnaround in rental demand, expectations of robust capital appreciation, and a dearth of new housing supply.

Last year's introduction of an extra 2 per cent stamp duty for foreigners has not significantly dampened demand, either. Project marketing efforts in Singapore have also regained momentum for some UK developments.

Estate agent Hamptons International noted that the resumption of international travel will be key to the residential market in prime central London. The firm expects more overseas buyers to flock back to London's priciest postcodes as global travel picks up and more UK residents return to work or live in prime locations, giving the market "a modest boost" in transactions.

London has long been a popular destination for investors from South-east Asia and East Asia.

Keystone Law partner Ian Cooke, who handles prime and super-prime London residential property transactions, said: "The lack of UK (housing) stock compared to the population growth, the ease with which properties can be rented out, the availability of mortgage finance, the common and deep ties between the UK and Singapore and, very importantly, the established rule of law in the UK, have for many years driven Singaporean investment into London."

The vaccine rollout and border reopenings are again positioning London as the key inward investment location in the UK property market, in the wake of headwinds from Brexit and the pandemic. "Many international investors are seeing now as a real moment of opportunity to invest in major cities like London as business life returns to normality," said Cooke.

He went on to note that overseas exhibitions have picked up, and successful London property launches in Singapore of developments such as One Thames City and London Square Greenwich are evidence of Asian investors' return to the UK after the lull.

In February, developer Third.i launched in Singapore its London mixed-use development Graphite Square. The project includes 160 new homes across three residential buildings, and over 80,000 square feet (sq ft) of co-working space. Indicative prices started at £699,950 (S$1.2 million) for a one-bedder.

During pre-sales, more than half of the units sold went to Singaporean buyers. Third.i founder Luke Berry told The Business Times that the developer achieved an average selling price of £1,134 per square foot at this first phase of the release. Singaporean buyers at the pre-sales mostly went for Graphite Square's one-bedroom units, which average 600 sq ft, and the two-bedroom, two-bath units, which span 700 to 850 sq ft.

Berry said the UK property market's laws are similar to Singapore's and thus easy for buyers from the city-state to understand. Historically, Asian investors have also seen robust growth, returns and leasing performance on their UK and London investments, he added.

Pervaze Ahmed, a partner in Withers' London residential property team, continues to see "a high level of interest" from investors in South-east Asia.

"Many Singaporean investors I've worked with have a natural affinity with the UK owing to a rich shared history between both countries. English is a common language, and there is a well-established legal system, a world-class education system, Michelin-starred restaurants, and leading cultural institutions," he said.

Several banks in Singapore provide residential real-estate financing for buying London property. "Since we have an office in Singapore (Withers KhattarWong), we can work seamlessly with Singaporean or Asian clients who are looking to invest in the UK property market," Ahmed noted.

He added that investors from the region like to take advantage of any weakening of the British pound, with a view to investing.

Tom McElligott, a lawyer in Withers KhattarWong's private client and tax team in Singapore, said London property remains popular with South-east Asian investors "for both hard economic reasons and more emotive, personal reasons".

For one thing, the UK's schools and universities are a major draw for Singaporean parents. "Even if the family does not intend to permanently move to the UK, they want a base in London to visit their children (who are studying there) and join them for holidays," McElligott highlighted.

Cooke said the UK's education system further encourages investments from overseas. "On average, houses in the catchment areas of leading private schools carry a price premium of 29 to 121 per cent. Investors may purchase these properties initially as rentals, but once their children become of school age, the property transitions to one that the individual or their family can use," he noted.

Hamptons analysts pointed out that historically high levels of capital appreciation offer a key incentive to invest in the London market. "Over the past 10 years in prime central London, the average value of a property has increased 73 per cent, to over £1 million," they said.

"Also, the last few months have seen prices in prime central London come close to surpassing where they were in 2017 and 2018, and reaching new all-time highs," Hamptons told BT.

The average value of houses in the UK rose for an eighth month to a record £278,123 this February, mortgage lender Halifax has said.

JLL predicts that in 2022, house prices in prime central London could jump 7.5 per cent while the Greater London area chalks up a 6 per cent gain, faster than a likely 4.5 per cent rise across the UK.

The consultancy added that new housing starts - the number of new residential projects on which construction has begun - in the capital are expected to stay "well short" of the Greater London Authority's target of 52,000 homes a year. "This will underpin strong rental value growth and house price growth across London," it said.

Specifically in prime central London, buying and leasing activity will be particularly strong in 2022 and 2023, given the anticipated return in travel from the world's high-net-worth individuals and "a severe undersupply of homes for sale and rent", JLL noted.

It foresees rents in Greater London moving up by 4 per cent this year followed by a milder 3 per cent increase in 2023. And in prime central London, rental values could climb 6 per cent in 2022 and another 3.5 per cent in 2023, JLL said.

Higher stamp duties

In April 2021, the UK government imposed a 2 per cent surcharge on stamp duty for non-resident buyers of residential property in England and Northern Ireland.

While this extra 2 per cent charge "has not helped", most foreigners are now factoring it in as a cost of investment, especially if they have a medium- to long-term view, Ahmed said.

McElligott likewise noted that the higher rates have not dissuaded South-east Asian investors, even though there was a period of heightened activity prior to the introduction of the increased stamp duty land tax.

In Cooke's view, most investors appear to have "taken it in their stride". The additional 2 per cent is a "modest" extra initial payment given that the average annual capital growth of UK residential property stood at 10 per cent in the 12 months to February 2022, he said.

"Furthermore, for those investing to sell for profit in the future, the upfront stamp duty cost can be deducted from their UK capital gains tax bill when the property is eventually sold," Cooke added.

The UK's property taxes are also still relatively competitive by international standards, he said.

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