Cooling measures are contributing to Singapore real estate’s worst slump for 13 years. But why have so many investors chosen to buy property almost 7,000 miles away?
Declines for eight consecutive quarters. The worst slide in 13 years. Real estate investors in Singapore have been seeing their returns shrink in recent years – no longer is it a global investment hub.
Government cooling measures introduced to prevent a property bubble are stifling growth in Asia’s second-most expensive real estate market, with few signs suggesting that things are likely to change in the short term.
For many, this has prompted reconsiderations of their investment strategy. With uncertainty in global equities markets, property still remains an asset of great surety. But with Singapore no longer the first-choice it was previously, investors now must find an international property market underpinned by the most key investment fundamentals.
In 2015 there’s been a notable trend in Asian investors acquiring real estate in the UK. So what makes Britain’s property market the answer to Singapore’s investment strife?
1. High returns
Proven and established. Over the past 30 years, UK residential property has outperformed gilts, equities and commercial property. Britain, with its draw of achieving high returns in a strong currency, has long been a favourite of the global investor community.
Substantial capital growth since 1996 means that every S$2,131 invested in rental property 19 years ago is now worth S$27,808, an annual rate of return of 16.3% a year.
Nowhere has this growth been more profound than in London. Average property prices in the UK capital stood at S$269,319. In June 2015, that figure had grown to S$1,303,621, a 384% return in 20 years.
2. Cities at the start of growth curves
Entering at the start of predicted future growth, as demonstrated in London, is a key investment consideration. Although property in the capital is reaching the end of its growth cycle, the UK is home to many cities which are set to enjoy similar uplifts in values and yields in the coming years, meaning that the time to invest is now.
Manchester, for example, is one of the UK’s fastest growing cities and named by HSBC as the UK’s buy-to-let hotspot. Yields in the north-west city have risen 13 times faster than those in London in recent years, as a huge demand for property is met with one of the country’s lowest levels of housing supply.
But with the city at the heart of the UK government’s Northern Powerhouse plans, it’s the potential for more growth that makes Manchester a compelling location. The city is set to benefit from £7 billion worth of economic investment over the next few years. It’s only natural that such sustained investment will impact on the performance of the local property market. High-profile figures, including Peter Lim, have already acted to secure their assets in the city in anticipation of this future growth.
3. A shift from homeownership to renting
It’s estimated that around S$64 billion is ready to be invested into the UK’s private rented sector (PRS) by a plethora of institutional investors from around the world.
Changing attitudes towards homeownership is helping to make PRS the next must-have asset. No longer is Britain definitively a nation of home owners. By 2025, over 50% of 20-39 year olds in the UK will be renting in the PRS. The number of households in the PRS will increase by 1.8 million in this time.
The need for transiency means that fewer young people wish to be tied down to a mortgage, preferring the flexibility that renting provides. Similarly, many of today’s generation of young British workers do not equate success with homeownership.
However, the demand for rental property is being met with low supply. For investors, this means PRS product can command rental premiums and sustained yield growth.
4. Recession-proved products
Property markets are naturally vulnerable to forex volatility. But the UK has one asset that boasted growth in each year of the global economic crisis.
Student property is currently the UK’s number one asset. S$8.5 billion was invested in the sector in the first six months of 2015 alone.
Britain has a worldwide appeal for education. This year UK universities offered more places for the 2015/16 academic year than ever before, while there are now 435,495 international students studying in the UK.
Purpose-built student accommodation (PBSA) is the property that students want. Yet throughout the UK there are university cities with huge undersupplies, meaning that many students often cannot find a dedicated bed during their studies. This increases the rental rates of any PBSA stock available.