London’s property market is rescued by its former colony, Hong Kong
A weak pound and unfamiliarity with Jeremy Corbyn may help to explain Asians’ enthusiasm
IF ANYWHERE is more obsessed with property than Britain, it is Hong Kong. In the storeyed former colony, handed over to China 20 years ago, real estate fills the conversation just as it fills the skyline.
Nor is this interest confined to Hong Kong’s own tightly packed buildings. On a recent weekend, an international property fair organised by REA Group, an online estate agent, drew over 2,500 participants. They were treated to an eclectic menu of options, from luxury flats in Dubai and agarwood plantations in Thailand to care homes in Yeovil. Advisers, analysts and feng shui gurus vied for attention. Those who came to a talk by Eddie Kwan, a migration consultant, had the chance to win a bottle of Perrier-Jouët champagne. A talk on mainland property offered the opportunity to win a motorised massage mat.
The property market in Britain is benefiting from this spirit of adventurous opportunism, at a time when it needs all the help it can get. House prices in London fell in the third quarter, year on year, for the first time since 2009, according to the Nationwide building society. Of new investment in Britain’s existing commercial buildings, only 38% was from British investors, according to JLL, a property company (this only includes funds with an identifiable country of origin).
As the Brits have retreated, the Chinese have advanced. More Hong Kong buyers showed interest in Britain in the six months after the Brexit referendum than before (see chart), according to a survey of retail investors by REA Group. JLL’s Hong Kong office has handled more British home purchases so far this year than in all of 2015.
China’s role in commercial property is even greater. The mainland and Hong Kong together accounted for 49% of international investment in London property in the first three quarters of 2017, compared with just 14% in 2015. In July Lee Kum Kee, a maker of oyster sauce and over 200 other condiments, bought the “Walkie Talkie” (20 Fenchurch Street), a 38-storey office tower, for £1.3bn ($1.7bn), the highest price ever paid for a British building. In March CC Land Holdings, from the mainland city of Chongqing, bought the Leadenhall building, otherwise known as the “Cheesegrater”, for £1.2bn. A £6bn project to regenerate Enfield in north London lost its first-choice bidder in October when Barratt, a British developer, pulled out. The preferred bidder is now a partnership that includes Pacific Century Premium Developments, owned by Richard Li, the son of Hong Kong’s richest man, Li Ka-shing.
What explains the appetite for British property? A more digestible pound is a big part of the answer. It fell by 19% against the Hong Kong dollar, which is pegged to the greenback, in the aftermath of the Brexit referendum, giving the territory’s buyers a chance to buy assets at a sharp discount.
The diminished appeal of Hong Kong is another reason. Its own property prices are punishingly high, forcing buyers to look elsewhere. Owners can earn yields of 3.5% from London’s prime offices, compared with 2.5% or so in Hong Kong, points out Denis Ma of JLL. A few months after the record-breaking sale of the “Walkie Talkie”, a 73-storey office building in central Hong Kong was bought for three times the price.
Hong Kong also faces its own political uncertainties. One owner of a house near Notting Hill Gate sees it as a safe haven if Hong Kong’s autonomy continues to erode. Many people from the mainland and Hong Kong buy property where their children go to study or where they may themselves retire. That, rather than the champagne, is the reason why it was standing-room only for Mr Kwan’s immigration talk at the property fair.
Hong Kong investors may view Britain’s fortunes with less alarm than do their British counterparts. “They think that Brexit is a blip,” says Mr Ma. “They accept that things might be a bit wobbly short term, but long term they’re still optimistic.”
It is too early to say whether they are right. But the political wobbles Britain has suffered since its election in June may have been slow to dawn on Hong Kong investors. They tend to be well informed about Crossrail and stamp duty, but not about politics. What do they think about Jeremy Corbyn? “I don’t think they really know who is the Labour leader,” says Vivian Chong of Ying Wah, which markets properties in Britain to Hong Kong investors. Should they ever have to find out, they might need their massage mats.
Hong Kong’s own property market survived an even greater political upheaval when sovereignty was transferred to China in 1997. But unlike Brexit, the handover united Hong Kong with its natural economic partner rather than distancing the two. And the negotiators were sensible enough to agree on a 50-year transition period: the principle of “one country, two systems” that protects Hong Kong’s economic freedoms extends until 2047. Even Britain might be ready for Brexit by then.