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UK agent alert points at housing momentum reversal
By
Chris Hughes
25 Oct5:50 AM
London
THE accepted truths of the world's favourite property market are losing their certainty.
The latest update from real estate agent Foxtons suggests that London is not a one-way ticket to riches, nor is it underwritten by international money.
Foxtons is a phenomenon of modern finance. It imploded in 2010 under the weight of debt imposed during private-equity ownership. Restructured, the company went public 13 months ago, capitalising on booming demand for London property amid a global glut of cheap money.
Since around April 2013, just after the Cyprus financial crisis, London property has been in overdrive. Prices are up 20 per cent in the year to August, according to the UK's statistics agency. Some segments of the market have more than doubled in value since 2009.
Now these gains appear to be provoking a buyers' strike.
Foxtons' sales commissions in the nine months to Sept 30 were up 17 per cent, at £54 million ((S$111 million), but down 7.8 per cent in the third quarter.
London's safe-haven status was supposed to guarantee price-insensitive demand. In reality, domestic buyers are rationally responding to expectations of higher borrowing costs. As Foxtons notes, tighter mortgage availability and uncertainty surrounding the election are also weighing.
For the company, this necessitates a sudden reappraisal.
It says earnings before interest, taxes, depreciation and amortisation will be below £50 million this year, about 15 per cent below forecasts. The shares fell by the same proportion on Oct 23, to 173 pence, still commanding a premium forward enterprise multiple of about 9 times.
The fallout for other agents and UK housebuilders was limited, implying Foxtons' focus on the capital gives it a particular problem. The consolation for investors is that the group enters this slowdown debt-free and Ebitda margins are still an impressive 36 per cent.
Where are the foreign buyers to rescue the situation?
Their dollar-based buying power has suffered, with sterling averaging US$1.66 over the past year, against US$1.56 at the same time point in October 2013.
Now it seems UK political uncertainty is also arguably affecting their appetite. Without their support, the happy meal of rising sales volumes and prices is no longer assured.
And without confidence in rising prices, a soft landing for this momentum-driven market will be harder to achieve.
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Qatari bid for London skyline rejected
NOVEMBER 07, 2014 9:15PM
An attempt by Qatari investors to own more of London's skyline has been rejected by the company behind the Canary Wharf development.
Qatar Investment Authority, which recently bought HSBC's HQ in the London financial district, has made a joint approach for Songbird Estates, in the latest move by the Gulf state to pick up prime real estate in the capital.
Songbird owns 69 per cent of Canary Wharf Group, which has a number of prime addresses in the heart of the capital in its £5.5 billion ($A10.04 billion) portfolio, including a stake in the Walkie Talkie building at 20 Fenchurch Street in the City.
QIA owns Harrods and Chelsea Barracks, and has a 29 per cent stake in Songbird. The emirate is also behind the Shard skyscraper, through a separate vehicle.
The joint approach from QIA and Canada's Brookfield Property Partners valued Songbird at £2.2 billion, but this has been rejected on the grounds that it "materially undervalues" the company and its development pipeline.
Shares in Songbird rose by nearly a quarter yesterday after it disclosed details of the approach.
The high-rise buildings of Canary Wharf transformed the former Docklands area of east London when it was redeveloped in the 1980s. It is now home to some of the world's biggest banks.
QIA and Brookfield have until a December 4 "put up or shut up" deadline under takeover rules should they wish to make a firm offer.
Songbird chairman David Pritchard said: "This proposal significantly undervalues Songbird and does not reflect the inherent value of the business and its underlying assets.
"The group has an exceptional management team with a clear vision to deliver additional shareholder value, including from our 11 million square foot development pipeline, the largest in London."
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London’s iconic ‘Gherkin’ office tower changes hands in $1.3bn deal
ART PATNAUDE THE WALL STREET JOURNAL NOVEMBER 12, 2014 12:00AM
‘Gherkin’ changes hands in $1.3bn deal
The Gherkin is one of the most recognisable buildings on the London skyline. Source: AFP
A BRAZILIAN billionaire has just snapped up the Gherkin, one of the most recognisable office towers in London’s skyline.
It underlines the foreign dominance of the city’s commercial real estate market.
Joseph Safra’s Safra Group has purchased the tower, more formally known as 30 St Mary Axe. The price was not disclosed, but sources close to the transaction said it went for more than £720 million ($1.32 billion).
At that price, the building is likely returning a yield of just over 4 per cent. The low yield made it a difficult purchase for institutional investors to make work, said Simon Barrowcliff, head of international capital markets for central London at broker CBRE.
“But for people who are putting money away for future generations, (that return) makes more sense,” he said.
The bidding process was dominated by wealthy individuals, rather than the institutions that feature prominently in London’s commercial property market.
The building — fondly called the Gherkin for its pickle-like shape — went for well above the £650m asking price, underlining the international demand for London real estate. Overseas groups dominated the 300 investors who registered interest in buying the Gherkin.
Government funds from Singapore, Kuwait, Norway, Abu Dhabi and China have all invested heavily in London property during the past decade, according to Real Capital Analytics and Property Data.
Last month, Norway’s state fund spent £582m on the Bank of America Merrill Lynch Financial Centre — a 55,000sq m office building in the financial district — from Singapore’s sovereign wealth fund, which bought it in 2007 for £480m. Qatar’s state investment fund has emerged as the leading bidder for the owner of London’s Canary Wharf.
This was Mr Safra’s first deal in the London market.
In a statement, Safra Group said, “The acquisition of 30 St Mary Axe is consistent with our real estate strategy of investing in properties that are truly special — at the best locations within great cities. While only 10 years old, this building is already a London icon that is distinguished from others in the market, with excellent value growth potential.”
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Soaring home prices in London push buyers to the sidelines
18 Nov5:50 AM
London
RUTH Marchand said her six-bedroom house in the leafy south London village of Dulwich would have sold within six weeks if she'd offered it earlier this year. Instead, she's still waiting for the first bid two months after the property went on the market.
"Nothing is selling now," said Ms Marchand, who said she doesn't expect a deal before Christmas. "Any comparable houses in the area are still on the market."
London's soaring home prices, which peaked this year, have pushed buyers to the sidelines. Lending restrictions and sluggish wage growth have also curbed demand, now at a more than six-year low, as buyers wait for values to decline further.
It costs about 25 per cent more a month to pay a 95 per cent loan-to-value mortgage on a London property than to rent the equivalent home, according to broker Cushman & Wakefield Inc.
"We may be at a point where it's just not affordable for people to buy any more, so you get a ceiling effect," said Philip Lachowycz, a UK economist at consulting firm Fathom Financial in London. "People have changed their view on the housing market."
The average home in London costs about 9.1 times the median income of a full-time worker last year compared with 6.7 times for all of England, according to a February report by the Greater London Authority.
London home prices will climb 15 per cent this year, property brokerage Savills plc estimates. UK wages are rising at a rate of about one per cent a year, according to the Bank of England (BOE).
Mortgage approvals fell to the lowest since July 2013 in September after UK financial officials took steps to damp demand. The new rules impose stricter affordability checks and restrict the number of high loan-to-income mortgages that banks can offer.
Ms Marchand's home has had about 20 viewings since it was offered for sale for £1.65 million (S$3.4 million) in September. "Both interested parties have their own houses to sell and can't bid until their home is under offer," she said.
The number of new buyers registering an interest in London homes fell for the sixth consecutive month in October and is now at the lowest since April 2008, according to the Royal Institution of Chartered Surveyors (RICS).
Owners who offered properties for sale in the most-expensive districts earlier this year are having to cut prices as more homes come onto the market at lower values, Countrywide plc, the UK's largest real estate agency, said on Oct 30.
"The supply and demand dynamic that had proved such a boost during 2013 has largely gone into reverse" in London, RICS said on Nov 13.
Prices in the city will fall by 2.6 per cent next year, the Centre for Economic and Business Research (CEBR) said on Oct 6. Savills and Knight Frank LLP both predict zero value growth in 2015. London will see the smallest increases of any UK region over the next five years, with annual gains of 2 per cent to 3 per cent from 2016 through 2019, Savills predicts.
"Earnings growth remains subdued and you have a trend towards more uncertain work, so a lot of people aren't on fixed incomes," Scott Corfe, head of macroeconomics at the CEBR, said. "Getting that upfront payment in the first place may be hard."
Mortgage payments for London's first-time buyers were the least affordable relative to wages in six years, even though borrowing costs have been kept down by a record-low interest rates.
The CEBR doesn't expect the BOE's benchmark rate to increase from the current 0.5 per cent until November 2015, Mr Corfe said. "When interest rates do start to rise, that will spook some households."
Prime Minister David Cameron promoted home buying through programmes like Help-to-Buy, which enables purchasers to take out a loan with a down payment of as little as 5 per cent.
The surge in prices that followed prompted the lending restrictions.
"The mortgage market is much more sustainable than a year ago - the new regulation has seen to that - but the bottleneck is now demand, and not supply," Richard Sexton, a director at property appraiser e.surv said in an Oct 29 statement.
The shortage of buyers may not last long, according to Jon Bell, a homebuilder analyst at Barclays plc.
"The long-term prospects of London remain intact," he said in an Oct 23 note when he upgraded homebuilder Berkeley Group Holdings plc to "equal-weight" from "underweight". "When we look at population projections for London, we believe that a situation of undersupply is likely to prevail."
The decline in UK prices and sale volumes prompted a profit warning from Foxtons Group plc, a real estate brokerage increasing its branches in the UK capital. Shares of Berkeley, the largest London housing developer, have dropped by 11 per cent this year.
Ms Marchand, the homeowner in Dulwich, is considering taking her property off the market until next year. "There's no point trying to sell over Christmas. We'll see where the market is in the spring." BLOOMBERG
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British housing crash, e-commerce collapse: Saxo paints worst-case scenarios for 2015
Published on Dec 12, 2014 1:06 PM
An apartment block under construction behind a row of traditional properties in central London on Dec 11, 2014. A British housing crash is among the 10 extreme scenarios that could become reality next year and turn global markets upside down, Saxo Bank Group said in its annual Outrageous Predictions report. -- PHOTO: REUTERS
By Wong Wei Han
SINGAPORE - The British housing sector crashes, while the nation moves towards exiting from the European Union. China devalues its currency. A volcano erupts in Iceland to cause widespread environmental damage.
These are among the ten extreme scenarios that could become reality in 2015 and turn global markets upside down, Saxo Bank Group said in its annual Outrageous Predictions report on Dec 12.
In its latest set of predictions, Saxo Bank warned of a housing crash in Britain, particularly in London, as the impending Bank of England rate hike could drive property prices up by as much as 25 per cent next year.
Also in 2015, "the UK Independence Party wins 25 per cent of the national vote in Britain's general election on May 7… UKIP joins David Cemeron's Conservatives in a coalition government and callsfor the planned referendum of Britain's membership of the EU in 2017. UK government debt suffers a sharp rise in yields".
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London estate agency Rokstone is offering the former residence of fashion icon Daphne Guinness for sale at £6.95 million.
The luxurious three-bedroom duplex penthouse on King Street provides fantastic views across Covent Garden and the Piazza, and has been beautifully designed for Daphne Guinness herself, with extra touches added by the current owners.
Becky Fatemi, Managing Director of Rokstone said: “This exceptional penthouse has been designed for fashion Icon, Daphne Guinness, meaning that the buyer of this apartment will not only own a home in a desirable part of London but also live in exceptionally beautiful surroundings, both internally and externally.”
She added: “Covent Garden is a vibrant place to live, with an array of high quality shops and restaurants a short stroll away. The current owners are from Asia, a nationality that is becoming increasingly interested in property in WC2 for both investment and a place to live, due to its proximity to cultural delights such as the Opera House and to be close to the river.
“We have also received a surge of enquiries from Middle Easterners looking to move into the area. The property also comes with a separate parking space by negotiation, further adding to its appeal.”
Upon entering the 2,900 sqft penthouse, residents will appreciate the high ceilings and original detailing, which has been expertly blended with modern interior design to provide an opulent yet comfortable living space. The entrance floor offers a generous reception room, professional kitchen/dining room, cloakroom and two generous bedrooms complete with en-suite bathrooms.
Leading upstairs, the owner of this unique home will not be disappointed. Spanning the top floor, the master suite has been created to offer a lavish bedroom with high beam ceilings and finishes including an abundance of fitted wardrobes and an adjoining living room that can be closed off by two large sliding screens.
The master bathroom has been created with black marble and luxurious bath and sink top with art deco-style mirrored finishes. The unique shower room includes an integrated music system and fibre optic lighting, creating an ambient atmosphere.
In addition, the rear of the property features a large sunny terrace with views of the BT Tower and beyond, offering the perfect place for summer parties or relaxing.
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London flooded by Oslo oil funds as NBIM invests on Regent Street
OLIVER SHAH THE SUNDAY TIMES JUNE 18, 2015 12:00AM
Part of London’s Regent Street shopping hub owned by Norway’s Norges Bank Investment Management. Source: Supplied
January 13, 2011, started inauspiciously for Karsten Kallevig. The head of property at Norway’s sovereign wealth fund woke up at a hotel in London’s West End ready to sign a £450 million deal to buy 25 per cent of Regent Street from the Crown Estate.
“I put on the TV, then just read through the contract one last time,” he said. “And on the TV they’re showing there’s a guy who has locked himself in a store on Regent Street, saying he’s got a bomb. I’m sitting there, saying on one hand ‘I’m very glad this came before I signed’. On the other hand, ‘any day he had to pick to lock himself into a store and threaten to blow himself up, it’s today’.”
Police soon escorted away the would-be bomber and Norges Bank Investment Management (NBIM) bought the stake.
Standing on Regent Street last week, floppy fringe blowing in the wind, Kallevig pointed out how the shopping hub had changed since then. The last few tartan-and-tat tourist shops have gone and flagship stores from retailers such as Coach, J. Crew and Watches of Switzerland have opened. “I must say, I wish we had come into Regent Street way, way before, because I’m sure you remember it from the early 1990s and it looked different, right?” he said.
“The Crown Estate, which retains majority ownership and manages the street, has been very, very good at turning it into something unique. And you ask yourself, how can they have done that? Look at Oxford Street. It’s a great street as well, it’s always been a great shopping street, but there’s a very different feel.”
Kallevig, 40, speaks with a mixed American and Norwegian accent, the result of a secondary education in Oslo and a career in high finance. He has a cerebral edge, citing The Grapes of Wrath by John Steinbeck as his favourite book and Lost in Translation as his favourite film.
Having studied at MIT in Boston, worked briefly at Goldman Sachs and Soros Real Estate, and spent 11 years at the private equity firm Grove International Partners, Kallevig was recruited to oversee NBIM’s push into property in 2010.
Norway’s use of its oil riches contrasts with that of Britain. Whereas successive governments here splashed most of the 1980s and 90s North Sea production boom on tax cuts and public spending, Norway established a sovereign wealth fund in 1990. NBIM received its first wave of cash six years later.
Today, the fund holds 6971 billion krone ($1160bn) — $230,000 for every person in Norway. About 4 per cent a year is siphoned off to subsidise government spending. The rest is invested in equities, bonds and property.
NBIM has become one of the biggest investors in the London stockmarket, alongside the American fund manager BlackRock. Kallevig’s mandate is to crank up the property weighting from 2.3 per cent to 5 per cent in the next few years. That doesn’t seem a big shift, but it means ploughing £16bn more into bricks and mortar in a manageable way.
“He has one of the biggest challenges in the industry,” said a senior investment banker. “It sounds like Brewster’s Millions ([a film in which a minor league baseball player has to spend $30m in 30 days to win an even bigger inheritance) but it’s not as easy as that.”
NBIM wanted a global property portfolio — but, as Kallevig pointed out, “you can’t be everywhere”.
“Real estate is a lot of work,” he said, “and when you’re in the unlisted business, nothing’s standardised, nothing’s really liquid, nothing’s transparent, and all of that, so you have to do the work.”
His team decided to “mimic” a global portfolio by picking 10 cities with strong economies, growing populations and restricted supply. In London, Regent Street was followed by the purchase of 58 per cent of the Pollen Estate in Mayfair.
As time has passed, NBIM has paid relatively higher prices and accepted lower yields. Kallevig seems unconcerned: “I remember in London in 1999, (people were) saying it’s crazy, prices are insane, residential prices clearly can’t go higher ... And what has happened to residential prices since 1999?”
He said there had been “exactly the same conversation” when NBIM bought into Regent Street. “People were telling me, look, you paid way too much for this ... you’re going to struggle. And they (prices) certainly have increased by a lot more than we expected when we acquired our stake, meaning that, on paper, that’s been a very good investment.”
Kallevig acknowledged that London looked expensive on measures such as price per square metre and short-term yields. “There are other cities that are cheaper,” he said. “Now, you can use different metrics. You can say, let me compare the yield on the best properties and compare them to real (interest) rates ... If you did that — and I’m not saying that’s the way I’m looking at it — then suddenly London probably becomes one of the cheapest cities.”
Calling the cycle is a routine occupation for property veterans. Last month, the former Land Securities boss Mike Hussey said Britain was five years into a “phenomenal” 15-year property boom and that London would not see a cyclical downturn for a generation.
William Newsom of the estate agent Savills said the market was going through “extraordinary times”, driven by low interest rates and quantitative easing, but it was a “long way” from seeing a return of “silly” lending. In contrast, Mike Prew, an analyst at the investment bank Jefferies, said: “The party isn’t over yet but the slow music is definitely playing.”
Kallevig said he was “always surprised” by the industry greats’ perceived ability to predict the future. “We have an allocation that is 5 per cent of the whole fund. That’s a very big number. And there’s no way we can put that amount of capital into real estate and try to time the market and say, now we’re going to get out of London, it’s getting too expensive, let’s sell everything and then in a couple of years we’re going to buy everything and ride the cycle.”
Aside from buying 50 per cent of Meadowhall shopping centre near Sheffield, NBIM is focused on just a few square kilometres of Britain — the area of the capital bordered by Hyde Park to the west, King’s Cross to the north, St Paul’s to the east and the Thames to the south.
Would London have lost its sheen under a Labour government, whose policies included a mansion tax? “Er, we usually don’t make investment decisions depending on the current government,” said Kallevig. “Back in 1998 and 1999, there was a real discussion of whether Frankfurt or London would be the new kind of capital leader ... whether banks should be moving headquarters because Frankfurt could be the new capital of Europe. I don’t think that happened.”
He is similarly unmoved by the prospect of an in-out vote on EU membership. “Again, very hard to predict the future. I like London as a city, as I used to live here, but the fact that it’s such an international city, it attracts people ... All of that becomes this self-fulfilling prophecy that just has taken on a life of its own.”
The Sunday Times
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Aug 7 2015 at 11:08 AM Updated Aug 7 2015 at 11:08 AM
Taxed out of luxury mansions, investors in London head down-market
The number of investors registering an interest to buy a home in prime central London with Hamptons International dropped 10 per cent in the first half. Bloomberg
by Neil Callanan
The swankiest London neighbourhoods of Knightsbridge and Belgravia are becoming no-go areas for even the wealthiest property investors.
They are being driven out by higher sales taxes introduced by Chancellor of the Exchequer George Osborne in December, which rise to as much as 12 per cent of the cost of the most expensive homes.
Buying agent Camilla Dell says that her clients are spending an average of £2 million ($4.2 million) less on each transaction this year and they're more interested in cheaper areas such as Hackney and Shoreditch. That's because an investor buying a £5 million home pays almost £364,000 more in tax than if they spent the same amount of money on 10 apartments costing £500,000 each.
Mr Osborne has "really depressed" the luxury market, said Ms Dell, managing partner at broker Black Brick Property Solutions. Investors "are still spending the same amount, but they'll split it up between several properties in the sub-£1 million market," she said.
Through July 23, Ms Dell's Black Brick broker advised clients on 25 home purchases with an average value of £1.5 million compared with 12 deals averaging of £3.54 million in the same period last year. Sales of London homes for £2 million or more fell by a third in the second quarter from a year earlier, according to property data provider Lonres.
With investors now buying more homes in less expensive districts, prices below Mr Osborne's threshold are climbing and owner-occupiers, who should have benefited from his tax cuts, are being penalised, Mr Dell said. The tax increases kick in at £937,000.
"The very buyers Osborne was setting out to help, he's put at a disadvantage," she said. "At the same time, sales at the higher end have frozen. It was a very, very bad move."
The number of investors registering an interest to buy a home in prime central London with Hamptons International dropped 10 per cent in the first half compared with the same period last year, said Johnny Morris, head of research at the broker.
Investors who buy multiple apartments for about £500,000 in London typically receive a rental yield of 4 per cent to 5 per cent, compared with about 2 per cent for a luxury home in London's best districts, Morris said.
In Kensington & Chelsea, the UK's most expensive property borough, 137 homes were sold in April, the lowest monthly total since March 2009, according to the Land Registry.
Values in some of London's best districts have been falling since the stamp-duty changes, according to broker Knight Frank LLP. Prices in the seven months through July dropped 2.3 per cent in Chelsea, 2.1 per cent in Knightsbridge and 0.6 per cent in Notting Hill, according to data compiled by the broker.
The decline in values in prime central London "is a temporary correction, but I think PCL will eventually continue to grow," said Giles Hannah, senior vice president at Christies International Real Estate. "That's because there has been historical shocks before and the market has recovered."
About 5,000 UK homebuyers paid the higher stamp duty levies in the first half, two-thirds of them in London, according to Nationwide Building Society. If the levies had been raised a year earlier, 6,900 purchasers would have been affected, Nationwide estimates.
The average value of a London home sold by broker Savills Plc fell by £200,000 to £3 million in the first half of the year, compared with the same period in 2014, while transactions fell 15 per cent in the period, the broker said on Thursday.
"The buyers' market has returned," William Carrington, chairman of data researcher Lonres, wrote in a report on London's best districts on Monday. "I do not see an improvement in market conditions before September."
Bloomberg
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This city is world’s riskiest for property bubble: UBS
Katy Barnato | @KatyBarnato
8 Hours AgoCNBC.com
[/url]
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COMMENTSJoin the Discussion
Will near-history repeat itself? Just eight years after the sub-prime mortgage crisis, banks are warning about the risks from booming real estate markets across the world.
On Thursday, UBS said that property in all European cities now exceeds fair valuation, with London the most overvalued market on the continent and the city most at risk in the world for another housing bubble.
[Image: 101379675-154507589.530x298.jpg?v=1391156258]Gareth Cattermole | Getty Images
"The UBS Global Real Estate Bubble Index, as well as the cross-sectional benchmarks, point to the risk of a substantial price correction should the fundamentals for real estate investment deteriorate," the bank warned in its global property report.
London house prices, in real terms, are 6 percent above their previous peak in 2007, with real estate in the capital decoupling both from the rest of the U.K. and local household earnings, according to UBS.
The city is the world's least affordable, bar Hong Kong, which UBS ranks as the second-most likely city to have a property bubble.
"Foreign demand (for London properties) and demand deriving from safe-haven seekers largely explain current valuations. Global geopolitical risk and the high property valuations in Asian cities have helped to propel London house prices to new heights," UBS said.
"Domestic buyers too have contributed to the appreciation," the bank added, highlighting the alluring yields on buy-to-let investments and ongoing population growth.
The world’s best—and—worst housing markets
[url=http://www.cnbc.com/2014/12/23/check-out-the-worlds-best-and-worst-performing-housing-markets.html][Image: 101794337-Dubai_property.530x298.jpg?v=1403848637]
ChandraDhas | iStock / 360 | Getty Images
Property 'exuberance'
While the expense of London housing is well-known, Europeans may be surprised to learn that Amsterdam is rated the second-most susceptible city on the continent to a housing bubble. The German financial center of Frankfurt was also described as "on a rising trajectory in overvalued territory," with Geneva, Zurich and Paris additionally highlighted as overvalued.
After London and Hong Kong, Sydney was singled out by UBS as the world's most overvalued city — a feature that has also been highlighted by RBS.
Alberto Gallo, head of European macro credit research at RBS, warned in a research note on Wednesday that Australian banks could be at risk from a house price correction, stating that mortgages accounted for over 60 percent of their loan portfolio (almost double the share in the U.S. and three-times the share in the U.K.)
Low interest rates have encouraged borrowing in Australia, with the debt-to-income ratios of households rising above those in the U.S. and the U.K. and house prices in Sydney overtaking London, according to Gallo.
Earlier this month, Deutsche Bank also warned of a boom in global property prices, driven by loose monetary policy across the world, with policymakers in Japan and Europe still contemplating further stimulus measures.
"Beyond the chatter about how impossibly expensive the likes of London and New York have become, the topic draws far less attention than it merits from policymakers and investors alike. That is unwise. Both economic theory and empirical evidence tell us that property prices are exactly where we should look for exuberance," said Deutsche Bank in a report.
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US fair valued?
However, UBS and Deutsche Bank judged real estate in U.S. cities to be mostly fair-valued, even in New York. San Francisco was singled out as an exception by UBS, with prices fueled by foreign demand and the fast-growing economy of Silicon Valley. Chicago, meanwhile, was judged to be undervalued relative to its own history.
"Even in the U.S., pockets of potentially lofty valuations are surfacing. Commercial real estate prices are now 13 percent above the pre-crisis peak, while the price of farmland has nearly doubled in real terms over the past decade," Deutsche Bank said.
Several emerging markets have also joined the rally, with residential real estate prices rising sharply in India, Turkey, Hungary, the Philippines and Thailand in the first three months of the year, according to the Bank for International Settlements (BIS).
However, these gains were dwarfed by the 17 percent increase posted by Ireland — a country hit hard when its property market collapsed in 2007.
Countries that proved exceptions to the rule include France, Greece and Italy, where real residential property prices mostly fell in the first quarter of 2015. Plus, China and Russia both posted sharp falls in prices, according to the BIS.
— By CNBC's Katy Barnato. Follow her on Twitter @KatyBarnato.
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London property loses lustre for Chinese investors- FLORENCE CHONG
- THE AUSTRALIAN
- NOVEMBER 26, 2015 12:00AM
London is a hit with tourists but less so now for Chinese property buyers.
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Chinese investors have walked away from about £2.5 billion ($5.3bn) worth of property deals in London in recent weeks, posing a multi-billion-dollar question: are these exceptions, or do they signify an emerging a trend?
Shanghai-based private property conglomerate Shenglong last month pulled out of a £195 million deal to acquire Thames Court office tower, just a week after a London-based trade newspaper, Costar, revealed its identity as the buyer.
Established 15 years ago, Shenglong, which is controlled by billionaire developer Lin Yi, has been making waves in the US and Australia with a string of high-profile purchases. Its Australian subsidiary Aqualand has acquired $600m worth of prime sites, including the head office of Channel Seven at Pyrmont in Sydney’s inner west. Shenglong’s US subsidiary, Century City, is planning a 37-storey upscale apartment block in Los Angeles.
The Chinese real estate website, Mingtiandi, notes that although little-known outside of China, Shenglong appears to be using of funds earned through China’s property boom, and extended family ties in strategic locations, to build an international portfolio that includes eight development projects.
Back in London, the large Chinese insurer Anbang has decided not to proceed with the purchase of a prime office block, Heron Tower, the third tallest office tower in the city, for £750m. It would have marked the entry of the Chinese insurer into Europe.
Sources say the transaction would have been difficult because of a complicated shareholding structure. The building is held in a trust, and its investors include the State General Reserve of Oman Fund, the Omani sovereign wealth fund, and members of Saudi Arabia’s royal family.
A well-connected property consultant says, while Anbang might have walked away from the Heron Tower deal, within days it acquired the HSBC Tower in downtown Toronto for $C110m.
The third Chinese deal to stall in London involves China Minsheng, described as China’s largest private investment fund. China Minsheng was to fund the £1.7bn redevelopment of the Royal Albert Dock, being undertaken by a Chinese developer, ABP.
ABP plans to create a third CBD in London, with its East London project to rival Canary Wharf in size and scale. Canary Wharf, developed in the 1990s, is now London’s second CBD. Seven months after signing a letter of intent with ABP in Shanghai, China Minsheng last month withdrew from the project, reportedly because the partners could not agree on ultimate stakeholdings.
An explanation for the hesitation may be that London has simply become “too expensive”, according to a senior executive of a large firm in the City.
Others believe a further tightening of capital outflow in September may be starting to affect Chinese investors moving money out of China — if the funds have not already been transferred. This camp also believes that as the gaze of President Xi Jinping’s anti-corruption watchdog widens from the military, party cadres and public figures to business, wealthy Chinese businessmen are becoming more cautious.
“We are getting mixed messages from our Chinese clients,” says a source, whose firm handles many of the large property investments from Asia into London.
It has also been suggested that the Chinese may be starting to see more opportunities emerging in their home market.
Aside from the flood of rich Chinese buying residential real estate, Chinese corporate investors picked off some choice prime office blocks in London, and acquired stakes in several large projects in the 18 months or so before the current hiatus. Chinese institutional investment totalled at least £2.6bn on office buildings.
In a recent commentary on Chinese outbound capital, the Beijing team of global property firm CBRE noted that Chinese developers were starting to experience the “challenge of obtaining planning approval for development on bare sites” in London.
“It is difficult to get a good handle on what is happening with Chinese investments. But definitely, we are sensing that Chinese buyers appear to be wavering,” says a senior executive with a British property firm.
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