Hong Kong Investors Find Value in UK Property Market
As the Hong Kong (HK) dollar hits a two-year high and political unrest continues to impact the local market, HK investors are increasingly looking to the UK property market for their next investment. According to the director for central London investment at Savills, Jonathan O’Regan:
“We are definitely seeing a recent upswing in investor interest from Hong Kong, which could be attributed to the political situation there. Savvy investors are seeing cheap sterling (amid Brexit) as being the ideal opportunity to invest into core assets.”
Indeed, a key date for HK investors (and international investors in general) was June 2016 – the date the Brexit referendum was confirmed. GBP is cheaper today than it was in June 2016 and the HK dollar is reaching new highs. Conversely, property prices in the UK are continuing to rise and cities such as Birmingham have seen market-leading growth.
So how can Hong Kong investors take advantage of these market trends in their own investment strategies and stretch the value of their dollars?
Property Market Comparison
It’s important to consider the state of the Hong Kong property market. The city has had the least affordable property market for the past nine years, driven by a problematic housing shortage. With HK property prices increasing by 200% over the last decade, many HK residents have been pushed to seek properties overseas instead.
It’s these factors that are driving Hong Kong natives to buy abroad. Anne-Marie Sage, Head of International Residential for Asia Pacific at JLL says:
“The majority of our Hong Kong customers are investors looking for properties that are going to give them an attractive rental yield, where capital values are going to increase, or where their children might go to school or university.”
While the UK is having similar issues with property supply, it remains relatively affordable in some key areas, creating a competitive market that suits investors.
Finding Value Through Foreign Exchange
GBP is 12% cheaper than it was in June 2016, showing a marked decrease since the referendum. This has created a key window of opportunity for foreign investors, particularly in countries such as Hong Kong where the dollar is over-performing.
As we can see from the above graph from XE, over the last year the Hong Kong dollar has steadily improved against the Pound Sterling to some of its highest peaks in years. This means HK investors can increasingly find savings through foreign exchange, taking advantage of the uncertainty to stretch their own money in these prime investment locations.
It helps that some of these locations are much more affordable than the traditionally-popular London market – Birmingham for example is expected to grow by another 17% by 2023 and will still present the opportunity for savings as Brexit is finally confirmed and during its implementation.
According to John Treacy, International Sales Director at SevenCapital: “In recent years, regional UK cities such as Birmingham have begun to overtake London as top property investment hotspots and both China and Hong Kong have been amongst the quickest to recognise this.”
Similar growth can be seen across apartments as an asset class – the average price of a UK apartment has risen by £1,250 each month since 2013, equating to around a £75,000 increase.
With new developments in the pipeline opening up possibilities for transport, residential, leisure and commercial spaces, we’re seeing similar growth predictions within the London Commuter Belt. As the ‘London Exodus’ continues, towns within the traditional commuter belt such as Slough and Bracknell are attracting investors that may have been drawn to the South because of the capital.
Even within these locations, property agent Richard Leung believes Brexit is a buying opportunity:
“Sterling has weakened and London property prices fell in the first quarter. The major cities in the UK – Edinburgh, Birmingham, Manchester, Oxford and Cambridge – will remain brand cities after Brexit. Foreign investors will continue to buy there. It is easy and convenient for them to do so.”
UK Stability Key for Hong Kong Investors
The UK market continues to provide stability in the wake of political uncertainty. In the SevenCapital Brexit Survey, 95% of the respondents from Hong Kong didn’t consider Brexit the most critical factor in their decision to invest, while 43% identified market stability as a priority. UK property continues to demonstrate incredible demand against a backdrop of undersupply and increasingly, provide stability for the international investors that prioritise it.
During 2018, the top investor region in London property was Hong Kong at a value of around £2.5 billion pounds. In 2019 the situation is similar, except central London has been overtaken by the Commuter Belt, where continued regeneration and affordability has created opportunities for much higher potential growth.
Referring back to the SevenCapital Brexit Survey, the long-term view of the market is equally positive. 55% of the respondents believe the market will be ‘good’ to ‘very-strong’ in 18 months time, a figure that rises to around 64% in three to five years’ time. This is encouraging for a market that is going through a turbulent political situation, demonstrating the overall stability this sector can provide.
If investors are looking to prioritise a less-volatile market for their investments, the UK sector remains a steady choice experiencing unprecedented conditions. The ‘perfect storm’ of huge demand, chronic undersupply and historically low interest rates have combined to create an opportunity for international investors to stretch the value of their own currency.