Singapore investors in a bind over whether to invest in UK properties

SINGAPORE — To buy or not to buy? To sell or to hold? The answers to these questions are dividing market watchers and investors in real estate in the United Kingdom in the wake of an 11 per cent drop in the value of the pound against the Singapore dollar since the June 23 “Brexit” referendum.

Britain’s vote to leave the European Union saw the pound fall dramatically this week, hitting a new record low of S$1.7825 against the Singapore dollar.

On Friday (July 1), before gaining back some ground. Nevertheless, the sterling has depreciated 14.6 per cent against the Singapore dollar in the year to date.

That, in effect, is a double-edged sword. Market watchers say that while a cheaper pound could lead to an uptick of interest in UK properties by Singapore investors, whose buying power has now increased significantly, the weaker sterling also erodes the value of assets held in Britain, affecting gains on any sales, as well as repatriation of any income returns.

In addition, industry experts say, there is no doubt that the Brexit vote will negatively impact the economy and consumer confidence in the short term, dragging down transaction volumes and prices. The UK Treasury warned before the vote that residential prices would be as much as 18 per cent lower than if the country had chosen to stay in the bloc. In light of the risks, some analysts expect the Bank of England (BOE) to respond quickly by cutting interest rates, aiding liquidity in the housing market.

In the longer term, analysts noted, the uncertainty could curb supply coming onto the market, triggering higher inflation and forcing the BOE to raise rates.

“Undoubtedly, Brexit will mean a period of uncertainty for the UK economy ... (But) as in any investment market, a period of uncertainty creates clear opportunities to make gains for savvy buyers,” said Mr Richard Levene, director of International Properties (South-east Asia), Colliers International. “Buying opportunities will be ripe for Asian investors following the significant fall in the value of sterling. This creates an excellent opportunity for international buyers to benefit from currency gains as the pound strengthens over time.”

London real-estate firm Strawberry Star says that although it has seen more interest from Singapore investors seeking buying opportunities from a cheaper pound, it generally expects investors to adopt a wait-and-see approach.

“Brexit came as a surprise to many people, and it is still early days to say whether this is a good or bad time to purchase. Nothing much will happen in the property market as summer is normally a ‘holiday’ period. Come autumn and winter, activity will return, which should give an indication of where the London property market is heading,” said Mrs Doris Tan, regional director of Strawberry Star.

London property consultants JOHNS&CO agree that there is something of a lull right now. Investors are “too clouded by the range of uncertainties happening in the UK, with so much mixed and often-conflicting opinions,” said Singapore-based Duncan Peacock, who manages JOHNS&CO offices in the Far East. That said, Mr Peacock does expect the low sterling to add “some considerable momentum to exciting buying prospects”.

“Overseas buyers have the added bonus of purchasing in a safe haven market at a time when they can make considerable gains through a weakening currency. Focus will be on the more immediate projects coming to life, rather than those completing later down the line due to the lengthened payment structures. For others, they will adopt a wise wait-and-see attitude,” he added.

THE U.K.: ASIA’s PLAYGROUND

The UK has long been a destination for Asian real-estate investors. In the two years to June 2015, Asia investment into properties in the United States, the UK, Australia and Continental Europe totalled US$78.4 billion (S$105 billion), of which about US$22.2 billion went to the UK alone, according to a Knight Frank report. Singapore was the largest Asian investor in UK real-estate during the period, accounting for almost a third of the investments at US$6.44 billion.

Since 2010, UK-based Select Property Group has seen an 835 per cent increase in Asian investors buying British real estate. “For many Asian investors, the UK property market has offered stability and higher yields than some regional markets such as Singapore and Hong Kong. The reality is still ‘business as usual’ for the majority of the UK following the referendum outcome, and we believe the market will remain attractive for investors,” said Select’s sales manager for Asia Elliot Vure, who heads the Group’s Singapore operations.

There are no official data on properties purchased by Singaporeans in the UK, nor lending data for UK property purchases.

The Monetary Authority of Singapore said, however, that Singapore banks’ exposures to foreign property loans are “low”, comprising 2 per cent of total housing loan exposures.

“In addition, overseas property purchases by Singaporeans transacted by real-estate agencies in Singapore continue to be on a moderating trend, as Singaporeans adopt a more cautious attitude towards overseas property investments,” an MAS spokesperson said. “While the weakening of foreign currencies vis-a-vis the Singapore dollar may lower the initial cost of investing in overseas properties, households should be mindful of the risks involved when investing in overseas property markets. In particular, currency fluctuations will continue to affect the value of their investments,” it said.

United Overseas Bank has temporarily halted loans for property purchases in London. The bank’s foreign property loan offering is available only for London within the UK.

DBS Group Holdings and Oversea-Chinese Banking Corp said they continue to offer financing for property purchases in London, though they both have advised their customers to exercise caution.

For Singaporeans living in the UK, the picture is similarly mixed.

Mrs Cindy Chen-Hope, 35, a Singaporean living in Wales with her British husband and son, sees opportunity in a possible decline in housing prices.

“I am not too worried about my property devaluing as I have no near-term plans to sell the house. However, if house prices do fall, it could mean that we might possibly be able to upgrade to a bigger house at a lower price,” said Mrs Chen-Hope, who lives in a freehold four-bedroom terraced house purchased in 2007 for £120,000 (S$214,000).

“It was very difficult for first-time buyers to get onto the property ladder before Brexit, so if house prices do fall that could mean good news for them and for anyone looking to invest. Interest rates could also decrease, and that would mean less interest on mortgage repayments for existing homeowners. It’s not all doom and gloom,” she added.

However, Mr Edardy Sukayman, 36, a Singaporean who moved to the UK six years ago, is slightly concerned about potentially higher interest rates. “(I’m) a little concerned, but not so much about the value because I bought a home and not an investment property,” said Mr Sukayman, who bought a freehold three-bedroom semi-detached in London two years ago.

But, he added: “I’m much more worried about inflated interest rates after my fixed term expires. I may not be able to afford it anymore.” With 
additional reporting by Angela Teng