Weaker sterling sends Singapore buyers hunting for prime London property

Nov 14, 2022

LONDON’s prime residential real estate is once again in the sights of buyers from Singapore, as the British pound trades near historic lows against the Singapore dollar, resulting in attractive effective discounts.

JLL Singapore, for instance, has noticed an uptick in inquiries and sales from Singapore buyers in the past two to three months, after the pound plunged to an all-time low against the Singapore dollar at S$1.49 on Sep 26, following the UK government’s mini-budget on Sep 23.

Since then, the pound has rallied and currently trades at around S$1.60. This is still near historic lows and about 10 per cent cheaper than it was in the previous year.

The more favourable exchange rate means that prices of prime central London properties are considerably lower now for Singapore buyers. For example, a £1.5 million home transacted in 2015 – when the exchange rate was at a decade-long peak of S$2.23 to a pound – would have required S$3.3 million. A £1.5 million price tag today would require nearly S$1 million less, or nearly 30 per cent less, at S$2.4 million.

Savills’ agents in London too report increased activity in the city’s prime districts, including Chelsea, Belgravia and Kensington, as border restrictions ease post-pandemic. With “even more value for money on offer” from a weakened pound, the agents expect to see international interest build up further, said Savills Singapore.

Chua Shir Yee, head of international residential sales at JLL Singapore, noted that there are typically two types of prime London property buyers from Singapore – those looking to purchase property as an investment strategy and “personal buyers”, that is, wealthy Singaporeans who purchase residential property as accommodation for their children pursuing higher education in London.

So far, JLL Singapore observed that a larger proportion of buyers hinging on the weakened pound are personal buyers. Many are unaffected by rising interest rates and mortgage rates since they are usually “cash-rich”, said Chua, and tend to purchase homes in the range of £1.5 million (S$2.4 million) to £3 million.

Savills Singapore executive director of residential services and international residence Jacqueline Wong noted that the weakened pound has “revived interest among a new pool of younger first-time investors”, as compared to more seasoned investors who might have “bought” into the London real estate market earlier on.

Besides the currency “discount”, Wong said these investors may be attracted to potentially higher capital gains and yields from a prime London property.

This is because the purchase of a second or third property in Singapore will require an additional buyer’s stamp duty of up to 25 per cent for citizens and 30 per cent for permanent residents and foreigners, which might “curtail their upside”, she said. Meanwhile, non-UK residents have a 2 per cent stamp duty surcharge when purchasing property in the UK.

Real estate agencies emphasised that Singaporeans have always held a strong interest in London property, especially real estate in the “zone 1” city centre.

Knight Frank’s head of sales and residential project marketing Clarice Lau said this is due to London being a “key gateway city” with a mature real estate market. It is also “highly transparent with a strong rule of law and enjoys blue-chip status like Singapore”, she said.

Wong from Savills added that London homes, especially with its “resilient rental demand”, provide a strong platform for investors to hedge against inflation and currency exchange.

Based on Savills’ prime London rental index in the third quarter of 2022, rents have soared by 14 per cent in prime central London, the highest annual growth recorded since 1979. Savills attributes this to intense competition for homes located near the city centre, with an imbalance between low prime rental supply and increased tenant demand, which is up 70 per cent compared to August 2019.

Another report by Knight Frank showed a 2.7 per cent annual growth in prime central London house prices in September, with home prices projected to increase by 7.5 per cent in the next five years.

JLL’s Prime Central London Index posted 1 per cent growth in Q3 2022 over the quarter before, with prices up 1.7 per cent compared with the same period in 2021. Prime London prices “are now 5.3 per cent higher than they were pre-pandemic in Q1 2020”, JLL said.

More expensive homes saw the highest annual growth in capital values, with properties priced at £10 million or more rising 3.8 per cent annually, compared with growth of 1.2 per cent for homes below £2 million, according to JLL. In the rental market, higher-end properties registered lower growth: Rents for properties priced at £3,000 per week or more were 4.1 per cent higher year on year in Q3 2022, compared with 12.6 per cent growth for properties priced under £1,000 per week, the JLL report said.

Based on an August report on the Savills World Cities Index, London experienced a weighted prime yield of 3.1 per cent in June 2022 – above the average increase of 2.4 per cent in capital values. The UK has, however, taxes on capital gains for residential properties of up to 28 per cent.

“(This) is a highly opportune time for international investors to set their sights on central prime London homes,” said Wong. “Properties in upscale locations – such as Belgravia, Knightsbridge and Kensington – that provide consistent cash flow year-round and with potential appreciation on capital values are a good way of hedging against inflation.”

Even so, Knight Frank’s Lau urged buyers to remain “cautious and selective” when purchasing a London property, especially amid growing inflationary pressures and global economic uncertainties.

The UK’s economy, for one thing, might continue to be volatile due to “the political dimension of what is taking place”, she said. Last month, the UK government made a U-turn of the sweeping tax cuts proposed by former Prime Minister Liz Truss. Truss resigned shortly after and was replaced by Rishi Sunak, Britain’s third prime minister in 2022.

Lau emphasised that it is therefore important for buyers from Singapore to educate themselves on London’s property market, keeping up-to-date on its latest news and regulations, and seek professional advice from licensed consultants and relevant professionals.

“For now, large discounts for overseas buyers remain,” she said.