Hong Kong buyers fuel London homes boom

Demand from the colony is having a ripple effect on house prices
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Wealthy Hong Kong Chinese are buying hundreds of millions of pounds- worth of prime residential property in London in the run-up to the handover of the colony in June, inflating the already rising trend in prices.

The influx of Hong Kong money has accelerated to such an extent in the past year that some estate agents are reporting a 100 per cent increase in sales to colony buyers.

Vogue Residential, based in Belgravia and catering for the top end of the market in Chelsea, Knightsbridge and Belgravia, handles hundreds of properties year, typically valued at pounds 400,000-pounds 450,000. Two years ago, 20 per cent of buyers were from Hong Kong. Now it is 40 per cent.

Vogue's owner, Helen Toulouze, said: "We're experiencing a lot of Hong Kong trade, particularly in the last six months. Probably about 40 or 50 per cent of the rise in prices is due to the influx of this trade."

The last time that property prices rose in a similar manner was in 1988, just before individual tax relief on mortgages was abolished. This led to soaring demand and prices, followed by a slump. Now there is growing evidence of another boom developing; last year prices in London rose by 14.9 per cent, and solicitors, estate agents and mortgage lenders have all reported a surge of business after Christmas, with the Hong Kong Chinese adding an extra pressure to prices in the capital.

Jonathan Seal, developments director and a partner with Hamptons International property company, said: "We have been doing a huge amount of business in the Far East in the past four years. And certainly in Hong Kong in the past year the demand has increased. Our success is determined by the liquidity of the buyers' assets. We are selling central London properties, all residential schemes."

Among the homes that have been snapped up were a dozen apartments on the north side of Observatory Gardens, Kensington, which sold at more than pounds 500 per square foot (or pounds 400,000 per flat on average), and 20 units in Pall Mall, central London, at pounds 430 per square foot (pounds 270,000 per flat on average.)

Mr Seal's company hosts three exhibitions of London property in Hong Kong each month, and sales are running at 15 to 20 units per week. "Our properties start around pounds 100,000-pounds 150,000 and go upwards into the million- plus category," he said. Other London agents are also reporting sales in Hong Kong of between 15 and 40 units per week.

The dozen or so London estate agents who specialise in selling property to Hong Kong buyers expect the boom to continue. The key issue for British buyers is whether demand from Hong Kong will have a ripple effect on house prices in London and beyond. As the Eighties boom proved, the ripples tend to spread very fast as buyers and sellers are tempted into the market by accelerating prices. As prices rise at the top of the market, buyers squeezed out then opt to buy at the next level of prices, thus pushing out another set of buyers, but increasing values at the same time.

Agents dealing with the Hong Kong buyers differ over quite how much of an impact they will have. Lorna Vestey, partner in Sloane Square-based Knight Frank, acknowledges that demand from them has inflated prices in the top brackets. "Inevitably, anything that increases demand will push prices up," she said. "But the type of buildings we are talking about are not the kind that you and I could afford. On the whole they attract an international clientele."

Helen Toulouze, however, believes the trend does affect the choice available. "Obviously the British buyer has more competition and will have to look elsewhere in some cases."

Some buyers are probably preparing to leave Hong Kong in case of emergency. Potential emigrants from the colony are keen to live in four places: Sydney, Vancouver, the United States - and London.

But the majority of those who buy in London do not intend to live here permanently. Jonathan Seal estimates that 90 per cent are buying to invest in homes they can rent out. "It is an upward trend, growing on the back of the strong lettings market."

The chairman of the UK's Alliance of Democracy for China, Kai Yuan, agrees that destinations in North America and Australasia are favoured by many Hong Kong residents as potential bolt-holes. But he explained: "Hong Kong people feel it is easier to get residence in Canada and the US. But it [property acquisition] happens in London."

The boom, centred overwhelmingly on London because of the health of the capital's financial markets, is particularly affecting the high-value sector. Mr Yuan added that those choosing London are mostly the privileged 50,000 people who have been guaranteed residence in Britain if they want it. "Ordinary people are too poor to buy these properties. The major buyers are civil servants, people with passports." Those deciding to live in London do so because they feel more familiar with the British way of life and British institutions, he said.

Simon Cooke, managing director of Morgan Grenfell Property Asset Management, thinks prices will peak fast. "The price changes tend to happen quickly, then afterwards there will be a correction in prices, and then a plateau."