Singapore agents dismiss “unsophisticated” claim

They do not agree that local buyers are paying more than they should for London property.  

By Andrew Batt:

Asian demand for UK homes is at an all time high, but should buyers tread with caution and look at the big picture? Image Source: skyearth - Shuttershock.com

Singapore buyers of London property have been blasted as being “unsophisticated” for their choice to buy property in what has been described as a “feeding frenzy” at the growing number of overseas property exhibitions which take place here every weekend.

It’s claimed that London property buyers from Asia are also paying more than they should.
Singaporeans were the top overseas buyers of prime London new-build (off plan) property in prime central London in 2012. Almost one of four of every transaction involved a local buyer, and early reports suggest that 2013 has seen an increasing focus on London from local buyers.

Heaton said: “These properties are marketed en-masse at glamorous property exhibitions as speculative investments, particularly targeting unsophisticated buyers in Asia. They are bought off-plan in what can only be described as a feeding frenzy. This method of selling negates the hassles of searching and travel, and new-builds also offer modernity which local Asian markets associate with ‘high-end’.”

The claim came from Naomi Heaton, Chief Executive Officer of London Central Portfolio (LCP), a company that, according to its website, “… provides a professional service for the investor who wants to exploit the exciting opportunities this market offers but is looking for assistance with what can be a daunting and complex endeavour.”

Speaking exclusively to PropertyGuru, Heaton said: “Whilst there is clear appetite for brand new properties [in London] from less sophisticated new world economies, these investment choices should be entered into with care. Investors are paying a premium for newness, which by implication has built in obsolescence. At resale, units in big schemes can only compete on price. In the meantime, the rush of identical properties coming on to the market for rental means landlords are all vying for tenants at the same time, with a resultant downward pressure on rents.”

Questioned further, Heaton added that she was not trying to imply that these investors are not wealthy, but rather that they may not be aware of where the true value lies within the market.

FEEDING FRENZY?

PropertyGuru cited examples from just last weekend where four separate London developments where showcased in Singapore and sales in excess of 70 units were reported in one single unit.
Heaton hit back. She said: “I am afraid that I would refer to the sale of 70 units in a single development in one weekend as a ‘feeding frenzy’. Certainly, in comparison to traditional sales rates, this is exceptionally high and representative of what we are seeing across the board.”

She added that with regard to the comment about sophistication levels, we are simply saying that new developments are not of uniform quality, and buying from afar often prevents the buyer from seeing the myriad of flaws that can exist. Whilst buying 15 units can result in a discount, the purchaser is missing out on the diversification benefits and ‘putting all their eggs in one basket’.

“As I’m sure you recognise, these buyers will be competing for tenants with themselves when the properties reach the rental market, driving their own rents and yields downward,” she concluded.
Heaton offers what she says is a much more savvy, although doubtlessly more onerous way to invest in London. This would be to cherry-pick 15 properties, selecting the best from all of London’s micro-markets and benefiting from diversification. Moreover, the value in London lies in its scarcity value, conservation of architectural heritage and the limited land development potential in the best postcodes. As public data shows, new builds do not benefit from the same price growth as older properties.

She said: “Investors pay a premium for new-build properties, in large part due to the massive marketing hype which surrounds these new developments. In prime central London, the average price of a new-build reached £1.7 million in February 2013 – which is £650,000 more than for an older property in the same area, according to data from HM Land Registry.

Noting the shift towards the east, Heaton added that many overseas investors and now looking eastwards to developments in the Docklands and Canary Wharf, where properties have a much more appealing price tag. However, chronic oversupply of these new-builds results in dramatically suppressed yields and suppressing prices.

She said that Canary Wharf has seen 30,000 new units developed since 2000, in stark contrast to the 500 or so units a year in Central London. Prices are just one third of those in the heart of the capital and the units have limited resale potential once they are no longer new and the Asian buyer has moved on to the next marketing phenomenon.

Heaton concluded, saying: “Whilst London residential has undoubtedly become a reserve currency for the international elite, investors should be more cautious of where and what they buy. Older properties might need refurbishment, but investors undertaking this can benefit from an immediate uplift in value, rather than paying a premium to a developer.

STRONG DISAGREEMENT

Heaton’s comments, released yesterday in a press release gained significant traction in the UK media, but her suggestions were met with amazement by local agents contacted by PropertyGuru.

Julian Sedgwick, Director, Head of International Residential Sales for Savills in Singapore, said: “I don't agree with Naomi Heaton’s comment on the buyers in Asia being “unsophisticated”. Most of our clients come from very good backgrounds and are very well educated. Many of them will have done a lot of research on the development and the area before they commit to buying in any of our projects. Most will know the locations we sell and have some sort of connection with it. In some cases that may be attending university there.

When we launch projects into Asia we look at each one and look at the investment story behind it; location, capital growth and rateability. When we sell to clients we want them to return to us so it is important we sell the right property to our clients.”

Equally dismissive of the claim that Asian buyers are “unsophisticated” was Sarah Nicholson, Associate Director for International Marketing at CBRE Singapore.

She said: “UK developers are frequently choosing Asia as the location to carry out the global launch of their developments. This is because they recognise that the Asians are familiar with buying off plan – unlike British buyers. They also know that the Asians are extremely well informed buyers who like to invest in bricks and mortar.”

Nicholson added:  "Many Asians have studied or worked in the UK so are familiar with the geography. Before attending property exhibitions and committing to a purchase, they carry out huge amounts of due diligence on the local sales and rental markets, the developer and the specific site."

“First time investors will rarely buy at the first exhibition they attend; instead they will use it as an educational exercise and will then go away and do their homework. Asians are incredibly savvy, intelligent buyers who take advantage of the opportunities presented to them. Prices invariably increase between the Asian launch and the later UK launch, often by as much as 10 percent."

“Asian buyers will continue to reap the rewards of buying UK property off-plan,” Nicholson concluded.

So it seems that rather, as Heaton claimed, Asians are paying more for their property purchases, in actual fact they are often paying less for identical units in identical projects than their British counterparts.

Doris Tan, Director of International Project Sales for Jones Lang LaSalle, has been selling overseas property to Singaporeans at exhibitions for many years. She said: “Asians prefer to buy brand new projects. They are very familiar buying off-plan, and developers are offering good deals and often the best selection of units from my clients.”

Another advantage, she noted, is there are no progressive payments; they have a few years lead time to pay and that makes it an easy investment for many Asian buyers.

Tan added: “Rent-ability remains strong and our investors are looking for both capital appreciation and rental yields - so they do not mind buying forward. There’s also the currency gain should sterling appreciate in the coming years.”

Andrew Batt, International Group Editor of PropertyGuru, wrote this story. To contact him about this or other stories email andrew@propertyguru.com.sg