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Hong Kong

Jones Lang LaSalle: Weak Sterling Makes It A Golden Opportunity To Invest in UK Residential Property


The weak position of the Sterling, an anticipated price growth in the coming years as well as the projected strong demand in future have all pointed that it is now the golden time for Hong Kong investors to consider investing in residential property in the UK, according to professional real estate services firm Jones Lang LaSalle.
 
With the UK’s economy starts to move forward again with GDP rising 0.3% in Q1, the residential property market rebounded much quicker than expected and caught the market by surprise. In April 2010, residential property prices grew nearly 11% y-o-y.  New buyer enquiries and new instructions also rose by about 8% and 10% respectively in April.  London, in particular, has outperformed other regions in the UK and shown the strongest growth.
 
A major factor supporting property prices in London, and one which is likely to remain critical in the mid-term, is the lack of supply of property.  Although there is a significant number of planning applications in the pipeline, few of these will materialise.  In fact, of the 105,000 units that have gained government approval to go ahead with construction, only 11%, or 12,000 units are likely to be built.
 
“London remains fundamentally undersupplied with housing, and every borough feels the strain. The housing completions in Greater London are way below government target. Planning is a complicated and time consuming element of the UK property market, coupled with the difficulty in obtaining development finance. It will take at least a few years for the supply to come through the system due to planning issues,” remarked Jack Simmons, Director of Residential Investment and Development at Jones Lang LaSalle.
 
While there is no detour solution to the supply shortage in the short term, demand is on the rise continuously.  From 2006 to 2031, the number of households in London is projected to rise by more than 1 million, and with the household size getting smaller and smaller, an extra 33,000 households will be added in London every year from 2007 to 2026.  In addition, as the performance and hiring capacity of the financial and business services sector picks up, London will be best placed to capture this growth as it will continue to be the epicentre of economic growth. All these create strong demand for more homes. 
 
There is certainly a growing demand for residential housing, however, the lack of quality property at the right price and the difficulty in obtaining decent mortgages from banks have deterred buyers from taking action.  “When the buying market is not active, the letting market takes over. In fact, we have started to see buy-to-let investors returning to the market. This is a great chance for investors, especially overseas investors like Hong Kong, to ride on before the market becomes active and prices surge again from 2012 onwards,” said Anne-Marie Sage,  Regional Director and Head of International Properties at Jones Lang LaSalle.
 
“After a period of relative stability in 4Q2009, uncertainty in the financial markets has driven the value of Sterling lower in recent months. The result being a window opportunity for international / non-sterling based investors, including those from Hong Kong, to acquire more affordable assets in the UK.  This, however, could well be challenged when interest rates increase in 2011 and Sterling becomes stronger against the Hong Kong dollars,” Simmons said.
 
“The outlook for the UK and London housing market remains strong over the medium-to-long term.   2011 will bring consolidation and stability. As the economic situation improves there will be a degree of pent-up demand looking to enter, or move up, the property ladder. Demand, activity and pricing will build through 2012-2014, encouraged by further lender and developer participation. Prime London and Greater London will continue to outperform the UK trend, with Greater London house price growth expected to be around 9% per annum during 2012-14.”