Sunday, September 19, 2010

Smart money or lambs to the slaughter?

London calling: Asia investors load up on UK property

Without ever setting eyes on the property, Hong Kong resident Irene Chu snapped up a flat 6,000 miles away in London, a city she has visited but has no intention of ever living in. "I'm not buying the high-end property. I just bought one close to the tube line and that's a pretty safe investment," said the 40-something business executive who paid £215,000 pounds for her apartment. Chu isn't alone. Over the past year, Asians have invested a total of £761million in newly built apartments in central London, up from around £250m a year earlier, according to Knight Frank. Asian property investors are lured by the a confluence of positive factors, a weak British pound, property prices down over 10% from a record high in 2007, and low interest rates.

Posted by drewster @ 12:07 PM (1904 views)
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9 thoughts on “Smart money or lambs to the slaughter?

  • I was thinking about this. There must be plenty of wealthy people in countries such as China, India, Brasil, Russia etc who would like to settle with their families in a safe and stable country such as the UK. Surely this will influence prices to remain relatively high and have some impact in sustaining inflation in the UK? The value of Sterling has fallen on average 25% against other currencies.

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  • This story is incomplete – Knight Frank was her second choice of agent……apparently she dismissed the first on misinterpreting the notion of “fluctuations”

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  • tom101,

    I’m sure lots of people would like to live here – but mainly poor people. If you’ve established a successful business in a growing country, with a strong support network of family and friends, and you’re one of the richest people in your neighbourhood, then why would you throw it all away to settle thousands of miles away in Britain? As the first line says, London is “a city she has visited but has no intention of ever living in”.

    The more I think about it, the more these people look like lambs to the slaughter. They’re buying new-build properties, which is a classic mistake. They are enticed by “swanky exhibitions complete with lawyers and agents on hand”. Ask yourself, if it takes a high-pressure hard-sell to persuade you to buy new, who will do the hard sell when you need to shift it second-hand?

    Also I’m not convinced that the type of properties favoured by foreign investors are popular with locals too. Take the DLR out beyond Canning Town and you’ll see monstrous new apartment blocks which are built to impress investors rather than residents. The foreign investors buying in London today are making the same mistakes as London-based investors made in Liverpool or Birmingham five years ago.

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  • Drewster, Thanks for the reply.
    I do agree on the new builds but I do have quite a few friends who have moved to the UK (and some who are thinking of making the move) due to problems they foresee happening in the future. We tend to think ‘present day’ in the West. Others think generationally.

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  • Funny because none of the Chinese I know are in the least interested in having anything to do with the UK. I’m writing this from China, in a new build owned by my Chinese inlaws who have made some decent cash and who aren’t the least bit interested in buying in the UK. They are living in a booming country and, like most people i meet, they want to be a part of it rather than get involved in paying silly money for a stake in a country that is past its sell by date. If I asked them if they had considered buying in the UK they’d think i’d been overdoing the Moutai at dinner.

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  • I see newly-rich Chinese making the same disastrous investment decisions as the Japanese did in the 1980s – whether it’s cash-rich corporations buying businesses they don’t understand, or rich individuals as here buying property in a market they have no clue about.

    It’ll end the same way too.

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  • tom101,

    Interesting to hear that, thanks for the insight. Which countries are these people moving from? There was an article posted on here a few weeks ago which interviewed Chinese students in Britain. Most of them couldn’t wait to get back to China, where opportunities were greater and the perceived standard of living (esp. housing) was higher.

    Personally I see greater uncertainty in the UK compared with up-and-coming countries. Brazil has vast natural resources, unlike the UK. China has a fast-growing economy with world-class infrastructure and little debt; whereas the UK has a shrinking economy, second world infrastructure, and vast debts. Both Russia and the countries of the middle-east have vast oil reserves whereas the UK’s oil reserves are dwindling.

    That’s not to say all emerging economies are quite so rosy. Indeed, the UK looks positively appealing compared with e.g. Ethiopia or North Korea. That’s what I meant when I said that most people who want to settle here permanently are poor people, not rich people.

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  • drewster, They were moving from India, Hong Kong and China to UK. I must admit some wanted to follow the money and work back in their respective nations, but weren’t keen on settling there ultimately. We’ve got some turbalent times ahead and this little island is perhaps safer than most!

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  • ontheotherhand says:

    Unusually, the UK does not have witholding tax on profits for foreign owners. Most other countries tax the profit you make on the eventual sale of your home until you satisfy them that you have paid tax at home. The UK doesn’t so it’s a good place for the global rich to park cash.

    “Asian property investors are lured by… a weak British pound… and low interest rates.” What will these people do if their currency weakens against the pound and interest rates go up? Add up all these factors and they are making quite a risky bet for the meagre return on a distant and illiquid asset.

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