Though new apartment blocks appear to be springing up in London on an almost daily basis, locals are having trouble renting much of what’s being built.
Large swathes of new property are being snapped up, usually off-plan, by investors. Many of them are from overseas.
On a recent trip to Hong Kong, we met the brokers helping to drive this lucrative market in an attempt to find out more about the reasons for the increase in international buyers in global cities such as London, and a few more surprising UK locations.
Work hard, save hard
A cohort of wealthy investors is emerging in Hong Kong. These are rational buyers, investing liquid cash in global hotspots tipped to perform better than their own regions. As an Aberdeen-based Hong Kong investor told us, “Everyone in Hong Kong knows how to invest … especially when it comes to residential properties, everyone knows.”
Many middle-class buyers with cash to spare in Hong Kong are investing heavily in international property. There is considerable uncertainty about Hong Kong’s political and economic future, and interest rates for savings accounts are close to 0 per cent. The gross rental yield on a London property is more like 4-6 per cent, not to mention the potential for the value of the property to increase. Using the money to buy internationally is a far better investment.
A relatively weak pound and low property taxes on transactions are also part of the story. One of our interviewees observed that Hong Kongers are savvy investors, and because of Hong Kong’s colonial history, they are incredibly knowledgeable about the UK and the West. He suggested that “A lot of people think they have a very global view because their work peers, their friends, are everywhere … So people are exposed to overseas markets and not scared of investing.”
Hong Kongers tend to work hard and save hard. It is not unusual to see high school students trading on the stock markets on their phones between, or even during, lessons. Perhaps some of them are trading on demo accounts, but stories of those who have made handsome profits circulate widely in local papers.
All of this is further underwritten by training courses in financial literacy for the young offered by some major banks.
There is certainly no stigma attached to playing markets and little concern for or knowledge about the stress such investments might be putting on housing markets in distant lands – even if those stresses mirror the patterns of exclusion investors see at home.
While these investments are no doubt being driven by rational decisions about wealth creation, they also stem from insecurity and anxiety.
From Occupy Central to occupy London
Investors were left shaken by the pro-democracy Occupy Central or “Umbrella revolution” movement that saw thousands of students take to the streets in the last few months of September 2014. With jobs and housing in dwindling supply, these young protesters were speaking out against the business elite, and many in that elite were deeply spooked by the protests.
Looking out from the office of a high-rise building in the central financial district, one of our contacts, a representative of the real estate industry in Hong Kong, explained laconically how the movement cost his company significantly during this period as the main roads were blocked. Investors were literally unable to visit office blocks, and even the metro system was affected.
From his office, he can ponder abstract notions of wealth creation and speculate on where to invest next, relatively insulated from the ground-level politics raised by Occupy Central and a dissatisfied middle class that wants a better life.
From there, plans can be made to invest in London property projects such as the enormous Nine Elms development in Battersea, underwritten by Malaysian money and providing little affordable housing. Absent investors can use their purchasing power to let property to stressed London households, with Hong Kongers one of several major international groups investing in the city.
Unaffordable housing: Nine Elms, south-west London. PA
A report in the FT suggests that around three quarters of residences sold in central London were to overseas buyers in 2012-13, and that around half of these were to Singaporean, Hong Kong, Chinese and Malaysian investors.
The major winners in this story are those advantaged by local, national and global-regional inequalities. Exchange rates and wealth disparities enable investors to use London and cities like it as spaces for accumulation, rather than as places to live.
Meanwhile, successive British governments and mayors have proclaimed that London is open for business, meaning it should have more or less unrestricted capital and investment flows. The result is that the British state plays little part in brokering or taxing the investments made in local property.
Yet its success now means that London’s property market is no longer offering security or affordability, even at the upper reaches of the income spectrum.
Unchecked international flows of investment capital mean many capital gains are kept offshore (though this has recently been challenged by new rules on capital gains tax and aggravating local housing stresses, particularly when properties are left unoccupied.
In reality, relatively few properties are being left empty. If anything, Hong Kong’s investors are sometimes concerned that their properties are too expensive for London’s renters – and that a mass exodus of panicked investors could be on the horizon.
So now many investors are heading to the north of England, where rental yields are almost double those of London and entry costs are much lower. The relatively depressed residential markets of the north of England and the potential for renting to students and low-income tenants there are fast becoming a more inviting prospect than the overheated landscape in the capital.
Back in Hong Kong, our contact revealed to us that he is selling almost 100 north of England properties a month. The time for investing in London, he says with a twinkle in his eye, has passed.
There is talk of young professional Londoners moving north as they grow tired of spending more than half their monthly salary on rent. But they may well find that Hong Kongers have beaten them to it.