Property investors have beaten a path to London in recent years, drawn by its weak currency, safe haven status and relentless house price growth.
Every time a new crisis strikes, whether it’s the Arab Spring, euro-zone meltdown or emerging market turmoil, nervous investors around the world seek to park some of their wealth in London.
Middle Eastern buyers were responsible for 7.5 per cent of all prime residential real estate sales in London in 2012, according to Knight Frank.
And up to 70 per cent of newly-built homes in prime London locations are now bought by overseas buyers, led by Nigerians, French and Greeks, figures from Chesterton Humberts reveal.
Phase one of the Battersea Power Station development in West London, released in January 2013, sold out of most of its 866 luxury apartments within days, snapped up by Singaporean investors looking to flee emerging market storms.
This year, investors from the troubled countries Argentina, Turkey and Ukraine have led the charge into London.
But now sterling is strengthening, and so is local resistance to the influx of foreign money, as parts of the capital turn into foreign-owned ghost towns. Is it time to look elsewhere?
Many UAE expats are seeking new horizons. Rupert Connor, an independent financial adviser based in Dubai, already owns property in London, and was looking for diversification. “I was torn between Australia, the US and Kuala Lumpur, but Kuala Lumpur really took my eye,” he says. “The Malaysian economy has been growing steadily, but property is still good value. Kuala Lumpur is very close to Singapore, Thailand and Hong Kong, and all that wealth should eventually spill over.”
Mr Connor, 35, who has lived in the UAE for seven years, took out a 70 per cent loan-to-value (LTV) mortgage with HSBC Malaysia to buy a three-bedroom apartment off-plan. “This is purely an investment, I hadn’t even been to Kuala Lumpur when I bought the property. I liked the fact that its property law is based on the British legal system. Better still, there is no capital gains tax if you sell after five years.”
He plans to hold the property much longer than that, in search of a steady, long-term return,
“I’m not expecting the price to double in 10 years, but the rental income should give me a steady yield,” Mr Connor says, adding he is also considering investing in the UAE property market.
Paul Preston, director and head of Middle East at property investment specialists IP Global, picks out Brisbane, Australia, as the next property market to perform.
Sydney and Melbourne have raced ahead in recent years, but Brisbane now looks better value, he says.
“Its property market has been relatively stagnant for six years, but now price rises are starting to gain pace. The areas around Fortitude Valley offer great value and good rental returns, with vacancy rates of less than 1 per cent. A huge number of big corporates are moving into the Valley area, creating more jobs and pushing property prices upwards.”
Wherever you plan to invest, you need to ask three questions, Mr Preston says: “First, will the property’s capital value rise over the mid to long-term? Second, is there a healthy local rental market with strong and sustainable yields? Finally, will there be plenty of buyers if you need to sell the property at a later date?”
Many investors overlook this final question, but a safe exit is key to your ultimate success.
“To secure your exit, look for somewhere with desirable and affordable property, a healthy domestic market and readily available bank finance for prospective buyers. Brisbane has all three qualities,” Mr Preston says.
While some investors are looking to “flip” properties to generate a quick cash return, sophisticated investors should create a diverse portfolio of property in established markets around the world, says David Hughes, senior area manager, PIC (Middle East).
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