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Research reveals growth of international buyers in prime London housing market

New research from Knight Frank shows that 58% of homes were bought by domestic buyers. Europeans accounted for 13% of sales during the year, while one in ten sales were to Asian buyers. Nearly 5% of sales were to Russian purchasers.

But in the new build market, although UK buyers remain the largest segment at 27%, buyers from Singapore were second with 23%, followed by Hong Kong buyers at 16%, Chinese buyers at 5% and Malaysians at 4%.

Indeed, overseas buyers purchased new build property in London worth some £2.2 billion, up from £1.8 billion in 2011. When ordered by total investment rather than number of transactions in 2012, Singapore and Hong Kong still top the list, although Russia puts China to third place.

By average investment per property, Hong Kong investors tend to spend slightly more than those from Singapore or China, the research also shows.

The typical purchase price for new build property in prime central London among Asian buyers stands at around £680,000. The average spend by Russian buyers tends to be the highest.

Some overseas buyers, especially Asian buyers, are more comfortable with the idea of buying a property off-plan, as this practice more closely reflects the property market in their own countries.

‘This trend has had an important impact on the market in London, allowing developers to secure funding to develop schemes in a housing market largely starved of development finance. This has been a crucial part of financing many developments, which has resulted in London’s construction levels holding up relatively well compared to the rest of the country in the wake of the financial crisis, although there is still a significant undersupply of new housing in the capital,’ the report says.

‘Investors prefer properties based in zones 1 or 2, and ideally in close proximity to a tube station. Schemes close to the river are also popular, as well as regeneration schemes which guarantee that the public area surrounding the property will be attractive and well maintained,’ said Neil Batty, head of International Project Marketing at Knight Frank.

‘Areas that have opportunity for outperforming on price because of local factors are becoming more sought after. We expect the core Asian markets of Hong Kong and Singapore to remain strong, especially for the very best developments in the most desirable areas in London,’ he explained.

‘We forecast that some overseas markets may also rise in importance. Perhaps the biggest growth is expected in China. There has long been talk of a surge in investment in London property from China as the rising middle classes look for alternative investment opportunities, but this has yet to fully materialise,’ he added.

Knight Frank forecasts that the medium term outlook for the Chinese market is strong as while it may take some time for restrictions on overseas investment to be eased, a move which would open overseas property markets up to more Chinese investors, there is real interest in the region for prime London property.

Turkey is also an emerging market in terms of buyers of prime London homes. ‘Healthy economic growth during the last three years, far outperforming crisis hit Western economies, has led to continued wealth creation,’ said Batty.

India has often been hailed as a rising market for new London developments but they are not solely drawn to off plan. ‘While there is no doubt there is a long standing connection to London, and a strong interest in London real estate among Indian investors, buyers are not solely drawn to new build developments,’ he added.

He also pointed out that buyers are often keen to visit the UK themselves before purchasing, rather than doing so off-plan. Indonesia is tipped to become a stronger player in the investment market in the coming years. For example, the number of searches for prime London property from Indonesia on Knight Frank’s global property search jumped by 22%
in 2012, compared to 2011.

The report also points out that the future of the overseas investment market is not without risks however. Any sudden and unexpected weakening of the dollar against the pound could undermine the effective discount enjoyed by many investors.
However, the lure of London does extend beyond currency. Despite the currency discount being eroded for Eurozone buyers, there is still strong activity from French, German, Spanish and other European buyers in the wider London market.

Another risk is tinkering by politicians. The effect on the market of the new taxes for £2 million plus properties owned by overseas companies has resulted in fewer sales in this sector.

‘International interest in London property is not a new phenomenon, but the economic and financial changes since 2007 have created a fresh model for overseas investment in new build property,’ said Gráinne Gilmore, head of UK residential research.

‘Agents report that the appetite for London property remains strong, and there is an increasing interest in London property from a widening range of overseas buyers, especially some emerging economies where economic growth has remained robust during the downturn,’ she added.

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