(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)
By Peter Thal Larsen
HONG KONG, Sept 4 (Reuters Breakingviews) - Urban real
estate may prove a deceptive safe haven. Investors seeking
refuge from economic turmoil in the euro zone and mainland China
are snapping up prime houses and apartments in the likes of
London and Hong Kong. That risks crowding out locals. If the
onslaught continues, cities may start to raise defences.
In the London and Hong Kong real estate markets, it’s as if
the financial crisis never happened. The price of prime property
in the centre of the British capital is up 49 percent since the
spring of 2009, according to Knight Frank. In the former British
colony, residential property is up 12 percent this year, and 89
percent since the end of 2008, according to data from Centaline.
An apartment sold for a record $55 billion last month.
Ultra-low interest rates offer a partial explanation: for
those able to borrow, debt servicing costs remain relatively
low. But residential property is also increasingly seen as a
shelter from the risk of a euro zone collapse, or an economic
hard landing in China. Just as investors are willing to accept
negative yields on “safe” government bonds, buyers are more
concerned about preserving their capital than earning a return.
The flight to safety is causing strains. Local buyers are
squeezed out. If homes are left empty - as seems to be the case
in some of London’s more desirable areas - the stock of
available housing is also reduced.
High property prices can be a signal of a city’s success,
when they are a by-product of attracting high-earning workers,
whose income taxes and local spending then provide a welcome
economic boost. But passive and possibly absent landlords bring
few such benefits.
Hong Kong’s new chief executive has promised to restrict
some flats to local buyers, though it is not clear how this
would work. In the UK, the government’s only response has been
to close a loophole that allowed foreign buyers to avoid tax
when buying property. It’s possible that soaring prices will
eventually persuade inhabitants of London and Hong Kong to
become less obsessed with owning property. But in the absence of
such a shift - or a market correction - investors in search of a
real estate safe havens should prepare for a frostier reception.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Hong Kong authorities are considering measures for
restricting sales of apartments to local buyers, chief executive
Leung Chun-ying said on Aug. 30. “We are determined to execute
the policy,” he said.
- Leung also promised 65,000 new residential flats in the
next three to four years in an effort to ease pressure on
- Hong Kong property prices have risen 12.3 percent so far
this year, according to data from Centaline Property Agency, and
soared 89 percent since the end of 2008.
- Investors from mainland China accounted for 13 percent of
Hong Kong property purchases in the second quarter of 2012,
according to research by Nomura. The proportion peaked at 30
percent in December 2011.
- Prime property prices in central London hit a new record
high in July, property agent Knight Frank reported on Aug 3.
Prices have risen 49 percent since their post-credit crunch low
in March 2009.
- More than half the buyers of prime residential property in
central London were from outside the United Kingdom in 2011/12,
according to research by Savills. On sales of newly built
property, buyers from China and Asia Pacific accounted for
roughly 30 percent of purchases.
- Knight Frank data: link.reuters.com/der42t
- Savills data: link.reuters.com/fer42t
- For previous columns by the author, Reuters customers can
click on [LARSEN/]
(editing by John Foley and Katrina Hamlin)
Keywords: BREAKINGVIEWS HONG KONG PROPERTY
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