London Property selling in HK - Is it cooling off now?

London Property selling in HK - Is it cooling off now?


(I picked this comment up elsewhere, and agree with most of it):


London Property? - "It's so ooover in Hong Kong!"

============


That's the impression I am having.



Despite articles like the one at the bottom of the page, I think the love affair between Hong Kong buyers and London property is cooling off fast.



Here's why:



+ Property prices have softened in HK, so some buyers who have been waiting might rather buy locally. And for those who are getting worried about local prices, some of those fears may spill over to London too, is the stock market falls which came along with the property softness have been a global phenomenon



+ The UK and London riots have been making the headlines in the Hong Kong papers. London's reputation as a "safe haven" is bound to suffer



+ Some of the more alert potential buyers may have noticed the -3.4% drop in Rightmove's London "asking prices" - That's a big drop for a single month



+ (This is unprecedented): I am getting calls from agents I have not seen in months. They are calling to tell me about exhibitions they will have of London property on the weekend. I reckon that they are only making calls like this when they expect little attendance at their shows, and they are working hard to drum up interest.


Having said that, the press (which is a lagging indicator) is still writing about Asian Buyers putting their money into London. Here's an example:



The boom in Asia's wealthy

With the shift of the world's riches from the West to the East, the 3.1 million millionaires in the region are learning how to spend, spend, spend


Reuters in Singapore

Aug 18, 2011

Adrian Tan owns two Mercedes and is looking to buy a third car. The 36-year-old financial trader was shopping with his wife on a Singapore street lined with car showrooms and may go for an Audi or a BMW this time. ...

. . .

In recent months, London property has emerged as a favorite choice of wealthy Asians because of the weak pound (?) and record real estate prices in their own countries.



In the first six months of the year, Asians spent more than GBP 1 billion (HK$12.8 billion) in new developments in central Londod, up from a similar amount for the whole of last year, say property agents Knight Frank.

. . .

"Investors want another option. They see London traditionally as a very safe market and a market that provides very good returns in terms of yield and capital growth in property."



(I wonder when these eager buyers will turn sellers, dumping their investments on a weak market?)

(The above posting was mostly from a website WARNING people about overpriced London property):


Wealthy Chinese being duped into buying overpriced London properties



Far Eastern Buyers are paying prices which are 20-30% beyond what locals are willing to pay, often for expensive new properties in undesirable parts of London. Typically these properties are slated for completion in 2013 and beyond, and the buyer will expect to rent or resell upon completion.



Sadly for the poorly-informed foreign buyers, the rental assumptions being supplied by the vendors and their agents are pure fantasy. Typically the estimates are based on the sort of yields that an owner of a new property would want to achieve rather than any systemic analysis of the actual rental transactions. The vendors almost never back up their estimates with hard data showing what secondhand properties in the local area are presently achieving as rentals. Moreover, the impact of a large number of similar flats being suddenly available on the market (when the property is completed) is rarely considered.


"Rental guarantees", where offered, are typically mere sales gimmicks whose cost is most-probably funded by increasing the sales price. At the end of the guarantee period, the property owner may be facing a substantial drop in yield.



Finally, Buyers are not sufficiently well-informed to see when the vendor's sales prices are far in excess of secondhand sales for similar quality properties in the same area. Blackheath does not achieve the same prices per square foot as Kensington, or even as Islington.



The Coming Overhang

Flats being purchased by Far Eastern buyers may represent an important future source of supply, which will help to hold down rents or push down prices when the disappointed buyers unload them. Very few of the buyers expect to live in the flats themselves. In some cases they may be hopeful that their children may use them as accommodation while they are studying in universities in the UK. (A spell in the UK is expected to improve the English-speaking abilities of children, while improving their future job prospects.) But that sort of demand may be temporary, or may not occur at all if their children fail to get into the university of choice, or they change their minds about studying in the UK.



Rather than "squeezing Britons out of the property market", these naive buyers are likely to be providing British renters and future buyers with cheap property. Their purchases of expensive new properties are added to future supply at a time when Britons themselves were unwilling to buy new properties. Perhaps the typical smart Brit is wise not to compete, and are content to let the foreigners get on with risky investments at what may prove the top of the market. The feast will come later for the patient ones, who are waiting for the expensive flats to be unloaded at a loss.



It is the ill-informed foreigners who deserve the sympathy, not the "priced out" Brits.



(THAT "Editorial" was a response to a silly article):

http://www.dailymail.co.uk/news/article-2002999/Wealthy-Chinese-squeezing-cash-strapped-Britons-property-market.html#ixzz1PEF7SeeP

I'm a Brit born and bred now living in HK. Will not be buying a London property on the grounds that I don't want to be stabbed for 'disrespecting' some chav on the way to the Underground. Praying for President Assad to install himself at 10 Downing Street and bring down a reign of terror on these dogs.

You can get trouble anywhere in the UK over nothing. Proud to be British but the country has a real problem with low-level crime. If it can be sorted out, then it's a great place.

Some think that Home Builders lead UK property prices by six months or so.


If that's the case, then the recent dive in the swan dive in Barratt's share price cannot be good news for UK property bulls:


http://tinyurl.com/GPC-BDEV12mo

I have seen what has been on show in Hong Kong - and it is called "prime areas", but it isn't. It is places like: Croydon, Ealing, Collingwood, Hammersmith... etc. Now those may seem "prime" to agents trying to sell them. But I have lived in Kensington and Holland Park, and I know what prime is.


In fact, so-called prime is under threat too, in the months to come.


Let's revisit this in 6month and 12 months, and see how properties in areas like Knightsbridge, Kensington, and Mayfair have done - sahll we?

I am sure you know about the UK Housing Benefits scheme - where the government paid Market Rents on behalf of recipients - without a cap. This helped to push up prices, especially in London. Those benefits will now be capped. I think this will begin to put downwards pressure on rents, and perhaps reverse the trend in Average Household size. If household side starts rising (as it did in the US recession) and benefots recipients begin moving moving outside Central London, we could see a be drop in demand.


Meantime, who are going to be living in all those expensive new properties bought by people in Hong Kong, Singapore, etc? I think many owners of new flats are going to be very disappointed about the rents they receive in: Croydon, Ealing, Collingwood, etc. ... and even in Hammersmith (where I used to work.)

I think you are wrong, and this may have an "interesting" impact on London rents.


Let's revisit in 6 months, and again in 12 months.

Sure - Because the UK government was pumping out Housing benefits everywhere else.


The UK housing market now is dysfunctional because of:


+ Ultra-low interest rates, favoring landlords, and


+ Uncapped housing benefits propping up rents, as subsidised clients need not face reality


Kick out these jambs, and the whole ugly mess will come tumbling down.


Just yesterday, Nationwide announced a -1.67% drop in the latest month (August), so the adjustment may have now started.

There are so many London property exhibitions in HK and Singapore recently!


Anyway, whatever you do, be wary of Managing Agents, especially this one called Life Residential (www.liferesidential.co.uk).


Stay away from their Corporate Lets.


Their contract is such that they do not collect a deposit from the tenant. When the tenant cannot pay, you as landlord, are stuck! They will tell you that their tenants have no problems because they are reputable companies. That's not quite true because recently they had a huge Corporate tenant defaulting. Many of their overseas landlords are now caught in a bind.


Check out their website and you can see many flats at Denison House, Lanterns Court, for rent now. This information is correct as at 29 Apr 2013.