UK property investment may be tempting, but still risky
Updated: 2016-07-11 07:12
By Peter Liang(HK Edition)
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The pound has shed about 14 percent against the greenback since hitting $1.5 prior to the Brexit vote. The currency's depreciation has dented investors' interest in properties in Britain. Provided to China Daily |
If you think the British pound's massive devaluation following the Brexit vote has presented a great opportunity for you to buy the park-facing Mayfair apartment you're yearning for, think again.
London real estate is seeing a major downward reappraisal as the market tries to ascertain Brexit's full impact. It has just been two weeks since Britain's shock vote to quit the European Union, but many international banks and multinational companies are already talking about downsizing their London operations and relocating staff to Paris, Frankfurt or Belfast.
What has unnerved many market experts is that the expected exodus will leave behind a vast pool of vacant offices and apartments in the UK capital, leading to a possible price meltdown. This hasn't happened yet. But, the uncertainties plaguing the London market has prompted at least one major Singapore bank to stop financing its clients in acquiring London properties.
Before Brexit, London's commercial and residential properties were highly popular among investors from Hong Kong, Singapore and the Chinese mainland. The pound's devaluation has made these sought-after assets much more affordable, but this is not necessarily the best time to invest.
For a start, bank loans would be hard to come by. Of course, there're still many Asian banks that are willing to finance the purchase of London properties. But they are likely to demand much higher downpayments to counter the risk of negative equity when prices start falling.
In its Financial Stability Report, the Bank of England - the UK's central bank - warns of the risk of London's commercial-property prices plummeting, noting that the inflow of foreign investment had tumbled 50 percent in the first quarter of this year. Foreign investors have bought and sold about 45 percent of all London commercial properties since 2009, according to a BBC report.
The residential segment of the London property market is also likely to be similarly affected by the Brexit fallout. But if you must buy, go ahead. The pound has, so far, shed about 14 percent against the greenback since hitting $1.5 prior to the Brexit vote.
But, it's a lousy investment. Do expect the price falls to be accompanied by a retreat in rentals as well.
(HK Edition 07/11/2016 page9)