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Global living London in an international context
2–3 Contents Introduction 5 A global economic overview 6-7 World property at a glance 8-9 How does global residential real estate rank? 10-11 How does global retail real estate compare? 12-13 How does global commercial real estate compare? 14-15 A tale of three cities 16-17 The long term performance of residential property 18-19 The supply and demand imbalance 20-21 Overseas buyers in the London market 22-23 Overseas buyers in the global market 24-25 A comparison of property taxation 26-27 The taxation and regulary landscape for overseas buyers 28-29 Global influences on design 30-31 City snapshot 32-43 A comparison of the private rental sector 44-47 Global comparisons at a glance 48-49 London rides the global retail wave 50-51 The prestige and premiums of office towers 52-53 Sources and contacts 55
4–5
Introduction
The housing market in central London rebounded quickly in the
aftermath of the global financial crisis. In the following years it
outperformed the rest of London and the UK, with annual average
house price growth of around 10% over the past five years. As well
as local influences, this performance reflects a range of global
economic and geopolitical factors, with London benefitting from its
role as the world’s preeminent financial centre.
In our increasingly globalised society, world trends are becoming
inextricably interwoven with the local markets affecting sales
rates and prices. However, globalisation doesn’t stop there; it also
affects the type of buyers and the type of product.
In this report we review the London residential property market
within its global context, and see how it competes with other world
class cities. We examine a range of issues that influence property
market performance. These include the broader economic
backdrop, overseas buyers, tax regimes, the prominence of the
private retail sector, and how our increasingly globalised way
of living has influenced residential design. We then complete
the circle with a brief look at commercial property as we seek to
understand London in its global context.
Jennet Siebrits
Head of Residential Research
CBRE
6–7
A global The US recovery is on track with 4%
growth in the second quarter of 2014,
Geopolitics are a concern and can play
a role in weakening economic sentiment
Global growth may lack pace, but this means the cyclical
upward pressure on interest rates will be muted and
economic
offsetting a weather related fall in GDP in and reducing the impetus to invest.
Q1. Furthermore, jobs are being generated However, the key worry for investors in
the long term trend is firmly down. These are good
overview
at rate of about 200,000 a month. the housing market should always be
rising interest rates, but high levels of conditions for global housing markets, particularly in
There was no growth across the
Eurozone as a whole in the second
unemployment mean that interest rates
are unlikely to move upwards in any
the advanced economies.
Despite a choppy first half quarter. But, this concealed the fact
that a number of economies are doing
meaningful way until 2016 or even later in
the Eurozone.
of 2014, the forces acting on well, including Spain, Portugal and the
the advanced economies are Netherlands. The UK grew strongly at
0.8%. Germany was the weak link, due,
By that time the economies of the
OECD will have had almost ten years
positive and supportive of as in the US, to Q1 weather. If Germany of negative real interest rates. A recent
value growth in the property was excluded the overall Euro area would
have grown in quarter two.
IMF study analysed the long term
decline in real interest rates in the
markets. Overall, with global economy. It showed that both
interest rates expected to If the pattern of the post global financial
crisis recovery is volatile we should
nominal and real interest rates have
fallen over the last 30 years as inflation
stay low for the time being not be surprised, the headwinds have has declined. This does not really fit with
there is a promising outlook been strong. First, the banks had to
be recapitalised and restructured. This
economic theory which suggests that
real interest rates should track the rate
for the global economy. is complete in the US, but ongoing of GDP growth in the long term; so be
in Europe. Second, consumers in about 2 to 2.5% in the US and UK.
the advanced economies have had
to reduce their debt levels. Third, It seems the reason for the long term
governments that spent their way out decline in real interest rates, is an
of the crisis had to pursue austerity excess of savings over investment. As
measures, thankfully now largely over. production has shifted to high savings
economies such as China, global
With the advanced economies savings have risen. At the same time, not
restructured, apart from France and Italy, only has investment been depressed in
we look set for a period of reasonable the advanced economies, but the price
growth. Low levels of inflation and plenty of investment goods has fallen in relative
of spare capacity, except in the UK, terms. Consequently there is a surplus
means that interest rates do not have to of saving over investment. This helps to
increase that quickly. Job creation and explain why real estate prices, particularly
interest rates are two of the key drivers of in the world’s most dynamic and amenity
house prices. On a purely cyclical basis rich cities, such as London, Paris and
we expect this expansion to run until New York, have performed so well.
2020 in Europe.
The surplus of savings over investment
The Chinese slowdown is causing some is set to continue for some time. For
problems in the emerging markets. example, the flow of savings that will come
GDP in these markets has been turbo from China as it reforms its economy over
charged over the last few years driven the next five years has been estimated
by the export of raw materials into China. to be in the order of £1.3 trillion. This will
However, demand for these exports has depress interest rates and support real
waned in line with the cooling of China’s estate prices.
building boom.
Elsewhere in Asia, housing markets are
doing well. ‘Abenomics’ may not be a
total success, but it is positive for growth
and the Japanese housing market looks
very good value.
8–9
World property at a glance
New York London Amsterdam Munich
Beijing
£26 £218 £331 £30 £325 £541
£52 £2,071 £1,800 £109 £828 £2,000
£79 £393 £633
Berlin
£20 £298 £263
Tokyo
Dublin
£76 £590 £815
£33 £160 £357
Milan
£36 £389 £590
Los Angeles Bangkok
Paris
£27 £367 £890
£18 £63 £225
£53 £853 £1,100
Hong Kong
Rome £131 £2,565 £1,950
Mumbai
£28 £301 £590 Dubai
£37 £74 £725
£45 £79 £405
Sydney
£53 £543 £1,200
Cape Town
Key Kuala Lumpur
£9 £24 £204
£31 £331 £186
Prime residential prices £ psf Ho Chi Minh City
Johannesburg
Prime retail rents £ psf Singapore £27 £112 £317
£11 £15 £334
Prime office rents £ psf £65 £289 £950
2
Hong Kong £1,950
3 10 – 11
New York £1,800
4
Sydney £1,200
How does
5
Average prime residential new-build prices,
Paris£ per sq ft £1,100 Hong Kong
global 1 6
Depending on respective market trends, Hong Kong and London regularly oscillate
London £2,000 between first and second place in the residential rankings. However, following the
Singapore £950
residential
introduction of sales taxes in Hong Kong, transactions fell to a 17 year low last year.
As a result, prime property prices have fallen by between 5 and 10% over the year.
2 7
Hong Kong £1,950 However, there are signs that the market could be picking up. In particular, there have
Los Angeles £890
real estate been price rises in the mainstream markets. This reflects strong pent-up demand
buoyed by speculation of further easing from the government. Improved sentiment
rank?
3 8
related to recent capital market activity has also boosted the market.
New York £1,800 Tokyo £815
4 9
Sydney £1,200
London prime residential Mumbai £725
prices increased by around 5 10
16% last year and now Paris £1,100 Milan and Rome £590
stand at around £2,000 per 6
sq ft. London is just ahead Singapore £950
of Hong Kong, which is 7
in second place following Top threeLos Angeles £890
a tumultuous year in the London8
Chinese province. New York Tokyo £815
Demand for prime property in London rebounded quickly after the 2007 financial crisis.
is around 10% cheaper, but As a result, price growth has significantly outperformed the wider market, with average
still head and shoulders
9
annual growth of around 9% for the past five years. While demand was initially buoyed
Mumbai £725
by overseas buyers, we have since seen a resurgence in domestic buyers who now
above fourth place Sydney. make up around 52% of the market. There remains a fundamental lack of new housing
10
supply in London and this is putting continued pressure on prices. Despite talk of a
Milan and
possible Mansion Rome uncertainty
Tax causing £590 in the market, we expect activity to remain
New York
strong with total house price growth of around 30% over the next five years.
In the wider market, house price growth in New York remains relatively muted, at
around 2.5% last year. However, the prime market is supported by overseas buyers
and domestic high net worths, who have given this segment of the market a boost.
Average prime prices are currently £1,800 in New York, which keeps it firmly in the top
three, just below Hong Kong, and well above Sydney in fourth place.
2
New York £2,071
3 12 – 13
Paris £853
4
London £828
How does
5
Prime retail rent global ranking, £ per sq ft
Tokyo £590 New York
global retail 1 6
There is a very limited amount of space in Manhattan’s prime corridor of Fifth Avenue
Hong Kong £2,565 Zurich £570 between 49th and 59th streets. A couple of recent deals by Ralph Lauren and Valentino
real estate
further constrained supply. As a result landlords continued to raise rents on the few
existing spaces that are available.
2 7
New York £2,071
compare?
Sydney £543
While outlets on Fifth Avenue remain the most sought after, there are other very vibrant
retail corridors in Manhattan. For instance, the Times Square retail corridor also has
3 8
very high rents, and would independently rank ahead of Paris on the global top 10
Paris £853 Melbourne £456 most expensive markets list.
Hong Kong has consistently
been the most expensive 4
London £828
9
Moscow £418
global retail location. In the
latest quarter (Q2 2014) rents 5 10
Tokyo £590 Beijing £393
have remained broadly stable
at £2,565 per sq ft. This is 25% 6
Zurich £570
higher than New York in the
number two spot and a third
Top three
7
Sydney £543
higher than Paris, which has
rents of £853 per sq ft. Hong Kong
8
Melbourne £456
In Hong Kong, domestic retailers continued to expand in the prime streets of Tsim Sha
Tsui, Mong Kok and Causeway Bay. In addition, the competition among international
9
brands for prime locations remained strong. However, retailers are increasingly
cautious Moscow £418
about rental costs and the slowing pace of retail sales growth. Retailers are
increasingly preferring to expand in shopping malls rather than high streets due to
lower10rent, better trade mix and guaranteed footfall. While sentiment is expected to
stay largely positive over the next£393
Beijing 12 months, occupiers may become more selective
on locations. Rental growth in the region of 5% is expected in tier-one streets on the Paris
back of solid demand from retailers and limited supply.
The Paris market remains heavily polarized. Despite the significant cost to entry, high
streets remained the top targets for international retailers. Demand has been strong for
the limited supply of locations on prime streets, pushing up rents over the course of 2013.
Rue des Francs Bourgeois and Rue Saint-Honoré both witnessed increasing interest from
retailers, as there is a very limited supply of available space on the Champs Élysées.
2
London Central £109
14 – 15
3
Beijing £79
4
Singapore £65
How does Prime office rent global ranking, £ per5 sq ft
Paris £53
London
global
At £109 per sq ft, prime office rents in London rank the second highest globally. However,
1 6 on an occupancy cost basis, London surpasses Hong Kong at £164 per sq ft. This is a
Hong Kong £131 Sydney £53
commercial
13.5% increase over the year. This partly reflects development restrictions in the West End,
which keep vacancy rates comparatively very low. In addition, the improvement in the UK
7 economy has triggered a strong recovery in the demand for space. This demand, along
real estate
2
London Central £109 New York £52 with the shortage of available space, has been putting upward pressure on prime rents
throughout 2013 and into 2014. We expect further growth in rents in 2014.
compare?
8
3
Beijing £79 Milan £36
9
Prime office rents in
4
Singapore £65 Dublin £33
Hong Kong central have
increased by 2.3% over the
10
5
Paris £53 Kuala Lumpur £31
past year, ensuring Hong
Kong has both the highest 6
Sydney £53
office and the highest retail
rents. In London, prime Top 7three
New York £52
office rents in the West End Hong Kong
have increased by 10.5%. 8
£36 of £131 per sq ft, when other costs such
Milan the highest prime rents
Despite having
Beijing comes in third with as services charges and taxes are factored in Hong Kong (Central) only ranks the
office rents of £80 per sq ft. second 9 most expensive office location, after London. Hong Kong (West Kowloon),
is cheaper and is home to big investment
Dublin £33 banks. It has emerged as an attractive
location for cost-conscious occupiers looking for quality space near the central
business district (CBD). Occupancy costs in both markets are expected to start
10 Beijing
increasing in theLumpur
Kuala coming months. £31
Office rents in Beijing have remained broadly unchanged over the year at £79 per sq ft,
and Beijing’s Finance Street ranks as the third highest prime rents (and at an occupancy
cost basis). In Beijing’s Finance Street there has been very little new prime office supply
since 2009. Meanwhile, market demand from domestic companies is growing rapidly,
especially from financial institutions. Little new supply is expected in 2014 and rents in
this market should hold firm, and perhaps rise, over the balance of 2014.
16 – 17
A tale of three cities
Population born Owner occupied House building annual Museums Tallest building Most popular International airports Hotel rooms Average cost of Underground
overseas 49.5% average last decade 240 The Shard 1,004 ft girl’s name Heathrow / Gatwick / 110,000 a dinner out stations
37% 19,973 Amelia City Airport / Stansted £50 270
Passport
London
$
Current Average prime new-build House price growth, Michelin starred Share of millionaires Number of Most popular International tourists Milk 1L Cappuccino
population house prices last year restaurants 3.4% commuters boy’s name 16.8 million £0.95 £2.43
8,173,941 £2,000 psf 17% 64 3.2 million Oliver
Population born Owner occupied House building annual Museums Tallest building Most popular International airports Hotel rooms Average cost of a Underground
overseas 38.8% average last decade 83 One World Trade Center, girl’s name JFK / La Guardia & 106,000 dinner out stations
35.3% 27,518 1,776 ft Sophia Newark £44 468
Passport
New York
$
Current Average prime new-build House price growth, Michelin starred Share of millionaires Number of Most popular International tourists Milk 1L Cappuccino
population house prices last year restaurants 4.6% commuters boy’s name 10.9 million £0.83 £2.33
11,911,800 £1,800 psf 2.4% 67 5.2 million Noah
Population born Owner occupied House building annual Museums Tallest building Most popular International airports Hotel rooms Average cost of a Underground
overseas 66.4% average last decade 55 International Commerce girl’s name Chek Lap Kok 68,753 dinner out stations
6.4% 12,760 Centre 1,588 ft Anya £25 152
Passport
Hong Kong
$
Current Average prime new-build House price growth, Michelin starred Share of millionaires Number of Most popular International tourists Milk 1L Cappuccino
population house prices last year restaurants 2.6% commuters boy’s name 13.6 million £1.62 £2.42
7,219,700 £1,950 psf 17.5% 73 2.8 million Liu
18 – 19
The long term Long term real house price growth over 30 years
Demand for UK property is driven The shift of the underlying economic
primarily by domestic owner occupiers platform helped boost London’s internal
performance
and so reflects the UK’s underlying wealth, as well as transformed it into
United Kingdom
economic performance. Property price a magnet for global capital. The UK
trends therefore tend to mirror the ups gained the highest number of new
231.9%
of residential
221.4%
Australia
and downs of the economic cycle. millionaires in the decade up to 2013.
At 114,100 this was more than double
185.5%
property
174.4%
However, in an increasingly globalised the new US millionaires.
Ireland
Belgium
marketplace, both in terms of real estate
144.6%
149%
Norway
133.9%
France
and alternative asset classes, there are a Although many people buy a house
Canada
Netherlands
number of other factors that intervene to simply to live in, it is also an asset class
105.6%
House price growth in many affect market performance. These include in its own right. The case for investing in
United States
Finland
countries exceeds growth exchange rates, the relative performance residential property is compelling when
82%
70.4%
Denmark
58.2%
Switzerland
of alternative locations and asset classes, comparing trends across a range of
Spain
53.2%
across a range of global asset
South Africa
37.6%
South Korea
as well as governmental intervention, other assets.
19.2%
classes. UK growth has been particularly in relation to interest rates.
11.3%
We have tracked the performance across
3.8%
particularly strong, with
Italy
Residential property price volatility may a range of global assets over the last
real house prices tripling provide a quick win for investors, if they
correctly call the market and time their
twenty years and compared it with the
uplift in UK residential property prices.
over the last thirty years, entry and exit accordingly. However, a UK wide prices are exceeded only by
outperforming all of its more reliable and potentially rewarding US equity prices. However, being the
Germany
-7.8%
Japan
-14.5%
option is to adopt a long term strategy. capital city, London outperformed the UK
international competitors. and its residential market significantly
232%
outperforms all the other assets.
UK house price growth
over last 30 years
30% Long term trends in asset prices
UK house price growth
600
We have compared real long term house forecast 2015-2019
price growth across a range of countries.
Our analysis shows that the capital value If, in 1994, £100,000 was invested in
500
of residential property in the UK and London housing it would now be worth
Australia has more than tripled over the £577,000. The next best performing asset
last thirty years. This averages out at was the US S&P index; £100,000 invested
400
around 3.6% on an annual basis (after in 1994 would now be worth £440,000.
inflation). Growth in Ireland and Belgium London property outperformed the FTSE
has also outperformed global trends. all share and FTSE 100 by more than
300
double.
The UK and US economies, and
therefore property markets, were We expect both the London and UK 200
boosted significantly from the shift from residential property market to continue to
manufacturing to the service sector and outperform global markets, particularly on
in particular the freeing up of the financial a long-term basis. Our forecast suggests 100
sector, which started in the late eighties. London and UK house prices will increase
This particularly benefited London and by around 30% over the five year horizon
New York. Both cities had suffered from 2015. 0
decades of decline in the manufacturing
2013
2014
2010
2011
2012
2007
2008
2009
2005
2006
2001
2002
2003
2004
1999
2000
1996
1997
1998
1994
1995
sector, but gained a new lease of life
from the era of ‘hyper-finance’, that lasted
from 1995 to 2007. In addition, London London house price UK house price US S&P 500 FTSE all-share index
fared much better than New York in the
FTSE 100 UK 10 year yield US 10 year yield
post-financial crash era.20 – 21
The supply
The UK suffers from an extreme shortage We are simply not building enough Parallel problems across
of housing. Historically, the industry housing to satisfy demand. While the major global cities
and demand
has delivered around 125,000 new population of London has increased
homes per year, yet we have needed by 1 million over the last decade, we General trends in urban migration, While Tokyo and Beijing managed to
closer to 200,000. This situation has have only built 200,000 new homes and the subsequent massive upswing build an adequate level of housing, often
imbalance recently worsened, as the financial
crisis dampened construction levels.
Completions are now nearer 100,000 per
over the same period. This compounds
the already pronounced backlog
that existed previously. The Mayor of
in population, are not trends that are
exclusive to the UK and to London.
Rather, we are seeing this trend played
construction rates fail to match these
booms in population growth. In particular,
housing delivery rates are woefully low in
year. Against a backdrop of increasing London’s targets indicate we should out across all major global cities and, in Hong Kong and Paris, with 1 new home
A surge in urban living, demand, this continues to put pressure be building at least 40,000 per year to some cases, it is even more pronounced. built per four new residents. In some cities
against an increasingly on pricing, with long-term real house satisfy current demand. Dubai, for example, has had the largest construction fails to provide for even a
price growth at 2.4% per annum. percentage increase in population low increase in population; for example,
globalised context, has led There are simply not enough homes for over the last ten years, of 125%, which Berlin’s population grew by just 3%, but
to heightened demand for The supply and demand imbalance is Londoners as it is, even before we take equates to 1.26 million more residents. its low level of construction meant that for
much more acute in London. London’s into consideration the appetite for London Although Beijing grew by a much more every house built population increased
property in key cities across population has increased by 14% over residential real estate from overseas modest 18%, this actually means an by three and a half persons. However, the
the world. While in many the last decade, double the rate of investors. As a result, absorption rates additional 3.3 million residents. Elsewhere supply and demand imbalance is by far
change across the rest of the country. of new-build stock are at an all-time in Asia, Kuala Lumpur added 25% or the worst in London with just one home
cities the level of residential This equates to an additional 1 million high, with 63% of units that are still over 300,000 to its population. In major built for every five new residents.
construction fulfils the people living in the city. There are now under construction having sold off-plan. South African cities, the populations of
nearly 8.2 million living in London. This demand is also highlighted by the Johannesburg and Cape Town have
increase in demand, in some ongoing house price inflation. grown by an additional 1.2 million and
cases, the level of new supply The most rapid growth has been in the 850,000 people respectively.
200,000
East London boroughs, which have also
is inadequate. This has experienced the most development;
lead to upward pressure on Tower Hamlets, Hackney and Newham
Ratio of housebuilding to Population increase in the last decade
are amongst the fastest growing
prices. Rising prices are in boroughs in the entire country. New homes built in London population increase
turn intensifying demand, over last decade
as investors recognise
the acute investment
opportunity.
1m This supply and demand imbalance is
at the heart of the housing debate in the
UK and is something that all political
London
Paris
Hong Kong
0.2
0.25
0.28
New York
Hamburg
Amsterdam
0.5%
4%
8%
Increase in London’s population parties recognise as a priority. Although
over last decade house building targets exist and various Sydney 0.29 Berlin 3%
governments attempt to stimulate supply,
Paris 5%
Population growth has been driven the process of housing delivery remains Berlin 0.3
mostly by natural change, with more cumbersome, particularly given the Munich 12%
Kuala Lumpur 0.36
people of child-bearing age staying in expensive and time-consuming planning
Dublin 13%
the city. In contrast to historical trends, system. Finally, while the government has Munich 0.37
a much smaller proportion has been historically helped contribute towards Milan 7%
moving out of London to have a family. In the provision of low cost housing for Hamburg 0.47
Kuala Lumpur 25%
addition, there has been a considerable those who are on low incomes or are
New York 0.53
net inflow from twenty somethings, given unemployed, the private sector is now Cape Town 25%
the much greater employment prospects wholly depended upon to do this. Dublin 0.66
Rome 11%
in the capital compared with the rest of
Beijing 0.7
the country. Hong Kong 7%
Tokyo 1.6
The government has forecast population Sydney 15%
growth to continue at this pace over the 0.5 1.0 Ile-De-France 6%
next ten years, taking the total number of
people living in the capital to 9.3 million. Tokyo 7%
Furthermore, household formation rates London 14%
continue to outpace population growth,
reflecting the increasing prevalence of Johannesburg 25%
smaller households, which is putting Dubai 125%
additional pressure on housing stock.
Beijing 18%
1m 2m 3m22 – 23
Overseas Although the London residential market
primarily draws demand from its own
A criticism of overseas buyers is that
the homes are left empty. However, the
Where do overseas buyers originate?
buyers in
rapidly growing population, much has majority of overseas buyers – 58% – rent Over the last five years, the main Russian buyers, who have traditionally
been made of the role of overseas buyers the property out, putting the stock back appetite has come from South East honed in on the most expensive and
in recent years. Their prominence on ‘into circulation’. A further 27% buy to Asia, with new-build schemes from opulent end of the markets in nearly all key
the London new-build schemes is regularly flagged
up in local media as a source of concern,
live in it, and the remaining 15% buy as a
second home.
London regularly hitting the Hong Kong –
Singapore – Kuala Lumpur exhibition trail.
destinations, have quietened somewhat
in the wake of recent geopolitical issues.
market
particularly in light of increasing values Many are now looking at marginally
and affordability constraints. However, the Overseas buyers have been imtportant Asian buyers are active investors across more modest assets, at least by previous
issue is often overplayed. in supporting London’s development a range of global cities. However, Thai standards.
market during the recession. Overseas buyers have tended to invest in their own
Overseas buyers have
37%
investors have been attracted into London market rather than overseas. London is the In contrast, the political and economic
always played a significant by the favourable exchange rate and have
plugged a gap left by domestic buyers
exception and is one of the few overseas
markets they will buy in. This is because
unrest in much of the Middle East
continues to encourage wealth out of the
role in the London real unable to get a mortgage. These buyers it is popular to send children to London area, pumping a steady flow of capital
Of Londoners born overseas
estate market. Not only is tend to favour new-build stock and are
comfortable buying off-plan. As a result,
to study; buyers tend to purchase a
property to accommodate their children
towards London. The flight to safety
remains the number one priority.
there an immense depth London must be viewed within its global they have played a hugely important role while studying and then resell or rent the
of demand for residential context. London is a truly international city,
attracting people from all over the world
in the early phases of large schemes,
essentially de-risking them and enabling
unit out after they graduate. The most
popular locations for Thai buyers are
Buyers from mainland China are becoming
increasingly active. They have already
property in London, there is to its unbeatable business, cultural and construction to take place. Kensington, Knightsbridge and Hyde surpassed the Russians as the largest
also considerable breadth; educational environment. As a result 37%
of London residents were born overseas. According to a report by London First,
Park. But anywhere central near a tube
station will be considered.
overseas buyer group in Sydney and
New York, and look poised to make a
our recent schemes have It is inevitable that the cosmopolitan nature overseas buyers create additional real impact on the London market. This
attracted buyers from of London’s population is replicated in
its housing market, with a huge range of
economic benefits through the
construction of these homes. Every
is driven both by the sheer volume of
wealthy people coming out of the country,
over 25 different nations. nationalities owning property in London. 100 homes developed in central their global aspirations, and the fear that
This partly reflects the However, it is misleading to classify
non-British buyers as overseas buyers if
London contributes about £28 million
to the economy and creates 550 jobs.
their domestic residential market is now
at saturation point in key cities.
cosmopolitan nature they live and work in London, and have In addition, high net worths tend to
of London itself, but done for some years. contribute a lot more to the wider
economy. It has been estimated that
15%
increasingly, it highlights owners of homes worth more than
the compelling investment £15 million spend between £4 and £5
million a year in the UK, while those with
case of its real estate. homes worth more than £5 million spend
Overseas buyers between £2 and £3 million a year.
We consider ‘true’ overseas buyers to
be those who normally reside outside of Why London?
the UK, and these buyers actually make
up a much smaller proportion of overall
sales in London than the headlines Cultural offering
would suggest. Overseas buyers are Currency play
most prevalent in Prime Central London,
typically drawn towards high-end new- Education
build stock in very central locations. This
is a thin and competitive market that Financial centre Buyer nationalities, Prime Central London, 2014
aligns more closely with the global luxury
Low risk profile
goods market, than it does the wider UK
housing market. Non-British buyers make Market performance
up around 48% of our buyers in Prime
Central London. However, this share falls Prestige
dramatically going out from the centre;
Safe haven
in outer London, overseas buyers make
up just 7% of all sales. Across London as Supply & demand imbalance
a whole, overseas buyers account for just 1% 2% 3% 5% 10% 11% 14% 54%
15% of all sales. Time zone Oceania Americas Africa Middle Russia Asia Europe United Kingdom
East24 – 25
Overseas Overseas buyers are not just targeting
London; a similar story is being played
Established and mature high net
worths, typically from the Middle East
There is a growing share of middle
class investors, looking for investment
Share of population born overseas, 2014
buyers in the
out in other cities across the world. Other and Russia, are generally interested in opportunities. These are the equivalent
locations favoured by global high net buying both a trophy asset, and finding a of the UK’s buy to let buyers. Buyers Singapore 28%
worths are New York, Paris, Hong Kong, safe place for their capital. These buyers from China and South East Asia have
global market Sydney and Singapore; all international in
their demographic make up.
are the super prime elite and tend to
focus on a limited geography. They
feel more comfortable in the traditional
been active across the whole spectrum,
depending on the purpose of the
investment.
New York
Los Angeles
35%
35%
1
United States
7,135
Overseas buyers are not In addition, resort destinations remain
popular where there is a sense of history
‘golden postcodes’ in robust, mature
markets, so in London, close to Harrods, In tandem with overseas investors London 37%
exclusively a London and exclusivity. The French Riviera is or in Cannes with a sea view. Both new- looking to buy in London, British buyers
Sydney 40%
1 2
United States
phenomenon. The global one of the top favourites, as is Aspen,
Marbella, Maui, Pebble Beach, and the
build and historic properties are popular
to this group, so long as they are ‘one
are also active overseas. Popular ex-pat
destinations are the obvious targets, 7,135
China
2,378
elite have an interest in a Turks and Caicos Islands. However, of a kind’, trophy assets. These super such as Hong Kong and Dubai, as well Dubai 90%
wide range of locations and price growth in the urban centres
still outperforms that in the resorts;
prime buyers can be attracted to both
urban and resort markets, but focus on
as the numerous oil industry pockets
all over the world. Indeed, the Emirates 1 2 3
types of assets. In addition, according to Christies, average value key markets only; i.e. London, New York, real estate markets has one of the most United
7,135
States China
2,378
Japan
1,240
more modest Asian growth last year in the resort markets
was around 18%, compared with 31% in
Paris, Cote D’azur, Aspen, Marbella etc.
Buyers from India have also played a
diverse buyer profiles, with 133 separate
nationalities investing in the sector in 1.
investors are attracted to urban markets. role in the super prime market. H1 2014, spending close to AED 37.5
2 3 4
emerging locations within billion (£6.31 billlion) altogether. The
1
80%
China Japan United Kingdom
Retirees are the new downsizers looking British formed a considerable part of United States 1,240
global cities that provide for a life-style change. This group are this spend, at around AED 5.811 (£0.977,135
2,378
Net gain in millionaires over the last decade
513
good investment potential. essentially empty nesters who are looking billion) recorded, though this is likely to 1.
to trade grand estates for turnkey, urban be much higher. 4 5
This is globalisation and Of Chinese HNWs would like to send condos with instant luxury amenities. 1 2 3
Hong Kong 22,200
Japan United Kingdom 1 Switzerland
their children to study overseas United States China
integration of the financial Both urban and resort lifestyles appeal,
but the traditional ‘downsizer’ approach
Growth areas
7,135 2,378 Sydney 22,200
1,240 513 United
435
7,135
States
markets at work. For second home buyers, the Cote of scaling down has been replaced In terms of new markets, there is 1.
D’Azur, London and Miami, remain by a desire for a lifestyle shift, without potential for a considerable surge in New York 42,000 5
2 4 6
popular and account for 90%, 48% and necessarily making a huge sacrifice on values in parts of the world that are 3 United Kingdom 1 Switzerland 2
Japan Singapore Germany
45% of prime buyers respectively. the size of the property. These buyers undergoingChina
substantial infrastructure 45,00
513 435
United States China
2,378 1,240 388
have been prominent in Canada for improvements. Rio is an obvious 7,135 2,378
One of the increasingly significant buyer some time, with luxury condos in Toronto example; already rich in 1. natural London 114,100
groups is the Chinese. These buyers and Vancouver becoming increasingly resources, with a growing high net worth 5 6 7
3 4 2
typically favour urban locations, with well popular from this new segment. They are population,Japan
its massive infrastructure 1 Switzerland Germany 3 Canada
United Kingdom United States Japan
known universities, a strong economic becoming increasingly active in other key improvements1,240related to the World Cup513 435 China
388 384
backdrop and world-class lifestyle such urban areas, including London. and Olympics will only act as a further 7,135 2,378 1,240
as New York, San Francisco, Vancouver 1.
catalyst to improve the offer in the city. 1.
and Sydney. Motivations include ‘quality Younger, but still relatively wealthy buyers 5 6 7
4 2 3 8
of life’ and ‘children’s education’. are much more open to new, emerging 1 Canada 4
United Kingdom Switzerland Germany Taiwan
United States China Japan
384 United Kingdom
areas. They tend to lead the lower 513 435 388 329
end / entry-level of the luxury market. Number of millionaire households,
7,135 000s, 2014 2,378 1,240 513
Some have made money through tech 1.
companies, and therefore typically buy in 5 7 8
1 6
2 3 4 9
5
San Francisco, or Manhattan’s West Side, Switzerland Canada Taiwan
United States Germany Japan United Kingdom Italy
Switzerland
China 384 329
while others want to allocate trust funds 435
7,135 388 1,240 281
2,378 513 435
to property. Most favour urban luxury
properties, over the resort. In London this 1.
might be Southbank, Nine Elms, Canary 6
2 7
3 8
4 9
5 10
Taiwan Italy 6 France
Wharf and City-fringe, as opposed to Germany
China Canada
Japan United Kingdom Switzerland
Mayfair and Knightsbridge. 384 329 281 Germany
274
388
2,378 1,240 513 435 388
1.
7
3 9
5 10
8
4 6 France 7
Canada
Japan Taiwan Kingdom Italy
Switzerland
United 274
Germany Canada
384
1,240 329 281
435
513 388 384
1.
4
8 5 10 7
9 6 8
Taiwan
United Kingdom France
Italy
Switzerland Germany Canada Taiwan
329
513 274
281
435 388 384 329
5 10 7
9 6 8
Switzerland
Italy France 9
Germany Canada Taiwan26 – 27
A comparison Just as the political landscape varies
from country to country, so does the
Property taxes applicable
of property
underlying tax regime. Some countries
have a favourable property tax. For Stamp Duty Transfer Tax CGT Special Stamp Duty Annual Tax
example, stamp duty in Ireland is
taxation relatively low at 1% for properties under
€1m. It is lower still for new homes in
London
Hong Kong
France, and in the Netherlands it is 2%.
In comparison with many In contrast Stamp Duty is 4% in Dubai New York
and in Singapore overseas buyers pay an
other countries, the UK
Singapore
additional 15% tax.
property tax regime is With some property markets in danger
Kuala Lumpur
relatively modest. However, of overheating, local governments
Dubai
the inflow of overseas have increasingly turned to the tax and
regulatory framework to take some heat
Dublin
Taxation was also used to stabilise the
buyers into Prime Central out of their markets. To date, these have overheating Singapore market. Altogether
Johannesburg
London, and the subsequent been most marked in Asia and France. the government introduced eight sets Tokyo
of measures between September 2009
surge in values, has led In Hong Kong, for example, higher and June 2013. The first four rounds of
Sydney
to substantial political stamp duty and resale taxes were
introduced between 2011 and 2013,
measures were targeted at speculative Paris
activities in the residential market,
pressure to change this. which led many overseas buyers involving a seller’s stamp duty and
Berlin
Additional taxes on (particularly Chinese) to look elsewhere.
This caused some stagnation in the
mortgage restrictions. Although these Rome
measures resulted in a fall in sub-sales,
overseas buyers have been market, with sales levels falling by 15%. an Additional Buyer’s Stamp Duty (ABSD)
Beijing
introduced, namely a However, the top end of the market
didn’t suffer, with investors considering
was introduced in December 2011,
targeted at reducing foreign buyers.
higher Stamp Duty and a that tax changes on this scale of However, the market remained strong
Capital Gains Tax, while a investment are still comparatively ‘small’. and the government introduced the sixth
set of measures in October 2012, which
further Mansion Tax is also Although not designed to directly impact Loan Length capped at 35 years and a Cost for an overseas buyer purchasing a £2 million property
being mooted. the property market, the raft of wealth
taxes introduced by Francois Hollande
lower 40% loan-to-value (LTV) ratio for
non-owner-occupier buyers.
ultimately made it harder for domestic
buyers in France. However, overseas In 2013, the Singapore government London Hong Kong New York
buyers remained relatively unaffected. implemented two further sets of
As a result, international demand in key measures to quell the continued heat in
markets like Paris and the Cote D’Azur the residential market. It raised the ABSD
has not waned, whereas demand from and lowered the LTV ratio. Subsequently, Cost to buy Cost to occupy Cost to buy Cost to occupy Cost to buy Cost to occupy
French buyers in London has spiked. This the amount of mortgage credit that £140,000 £1,854 £170,000 £2,485 £56,500 £22,992
illustrates how the change in a local tax borrowers could obtain for a mortgage
can have a global impact. The temporary loan via the Total Debt Servicing Ratio
reprieve from tax gains that was offered in (TDSR) framework was also restricted.
France in mid-2013 was hugely effective Buyers are still digesting these raft of
in stirring activity again. measures and residential transaction
volumes have slowed somewhat.
New capital gains tax in the US has only
had minimal impact thus far, and hasn’t In the UK, there was considerable
slowed internal or external demand for uncertainty around the time of the
luxury property in LA, Miami, New York changes to the Stamp Duty Land Singapore Dubai Dublin
and San Francisco. There are some local Tax (SDLT) in 2013, which affected
nuances across the states; for example, transactions over £2 million around the
in Florida, there is no income tax, which time of implementation. However, these
makes it perpetually attractive to wealthy measures were later absorbed into the Cost to buy Cost to occupy Cost to buy Cost to occupy Cost to buy Cost to occupy
investors. The Miami market therefore market, with no lasting impact. Similarly, £60,000 £1,905 £80,000 £40,000 £4,300
no charge
experienced huge falls in the wake of there is now ongoing discussion around
the global financial crisis, but also one of the potential introduction of a Capital
the strongest rebounds, highlighting the Gains Tax next year for overseas buyers,
underlying attractions of the city, as well in addition to the Mansion Tax debate.
as the value for money it offers compared This is causing some uncertainty at the
with many other luxury markets. top end of the market.28 – 29
The taxation and regulatory
landscape for overseas buyers
Country Stamp duty or transfer duty Capital gain Annual tax Effective stamp duty Country Stamp duty or transfer duty Capital gain Annual tax Effective stamp duty
on a £1m property for on a £1m property for
purchasers purchasers
-- $0 – $14,000 = $1.25 for every $100 Same as income tax rates: Annual Land Tax. Max of 2% £40,490 -- 3% on cadastral value 33% if sold within 5 years, Yes but negligible. £70,000
Australia -- $14,001 – $30,000 = $175 plus $1.50 -- 0 – $18,200 = Nil for property valued over AUD Italy -- 7% if luxury residential exempt thereafter.
for every $100 over $14,000 -- $18,201 – $37,000 = 19c for 2,519,000. Plus Cadastral tax of EUR 168
-- $30,001 – $80,000 = $415 plus $1.75 each $1 over $18,200 (if first home), or 1% of price if
for every $100 over $30,000 -- $37,001 – $80,000 = $3,572 plus additional homes.
-- $80,001 – $300,000 = $1,290 plus 32.5c for each $1 over $37,000
$3.50 for every $100 over $80,000 -- $80,001 – $180,000 = $17,547
-- $300,001 – $1m = $8,990 plus $4.50 plus 37c for each $1 over $80,000 JPY 200,000 – 600,000 -- 39% if held 5 years. municipality
-- Over $1m = $40,490 plus $5.50 for 45c for each $1 over $180,000. -- 3% Acquisition tax -- 0.3% city planning tax.
every $100 over $1,000,000 -- 0.4% Registration tax new-build.
-- Over $3m = $150,490 plus $7.00 for
every $100 over $3,000,000.
-- Up to £125,000 – 0% Capital Gains Tax to be Council Tax (variable). £40,000
Stamp duty – 0.05% 20% if second home. CGT usually No individual tax as yet. £30,050 United -- £125,001 – £250,000 – 1% introduced.
China Deed tax – 3%. included in price and so borne by Kingdom -- £250,001 – £500,000 – 3%
the buyer. -- £500,001 – £1 million – 4%
-- £1,000,000 – £2 million – 5%
4% (Transaction fee). £40,000 -- Over £2 million – 7%
Dubai If bought by a non-natural person
15% for over £500,000.
-- First RM 100,000 – 1% -- Ownership up to 5 yrs -- Based on annual rental value. £30,000
-- New housing – 0.715% Standard rate for second home of Based on notional rent and £7,150 Malaysia -- Next RM 400,000 – 2% – 30% Generally 6% PA
-- Second Hand – 5.09% to 5.79%. 33%. Digressive rate applied from rate varies marginally whether -- Above RM 500,000 – 3%. -- Less than 5 yrs – 0%. -- Quit Rent of 1 – 2% (generally less
France
6th year, exempt after 22 years. main or second home. For than RM 100,000).
Paris region €1,000 to € 3,000
per year.
-- 2% -- Typically 0.1% and 0.3% of £20,000
Real Estate Transfer Tax of -- 25% Land tax rate is determined £50,000 Netherlands property value.
Germany 3.5% to 6.5%. individually in each
municipality.
-- Up to $2 million – 1.5% Special Stamp Duty (although Rateable value of 5% based £15,000
Hong -- $2 million to $2,176,470 – this is a capital gains tax) based on annual rental value of -- First SG$180,000 – 1% None. Based on rental value of property: £34,500
Kong $30k + 20% excess over £2 million on when property acquired and property. Singapore -- Next SG$180,000 – 2% -- Up to SG$8,000 – 0%
-- $2,176,470 to $3 million – 3% holding period: -- Over SG$360,000 – 3% -- SG$8,000 – SG$55,000 – 4%
-- $3 million to $3,290,330 – 1) Acquired on/after 10 Nov 2010 Plus 15% for foreigners. -- SG$55,000 – SG$70,000 – 6%
$90k + 20% excess over $3 million and before 27 Oct 2012: -- SG$70,000 – SG$85,000 – 8%
-- $3,290,330 to $4 million = 4.5% -- 6 months or less = 15% -- SG$85,000 – SG$100,000 – 10%
-- $4 million to $4,428,580 = $180k + -- >6 months but 12 months or -- SG$100,000 – SG$115,000 – 12%
20% excess over $4 million less = 10% -- SG$115,000 – SG$130,000 – 14%
-- $4,428,580 to $6 million = 6% -- >12 months but 24 months or -- Over SG$130,000 – 16%.
-- $6 million to $6,720,000 = $360k + less = 5%
20% excess over $6 million -- >24 months but 36 months or Foreigners pay additional
-- $6,720,000 to $20 million = 7.5% less = N/A 10% surcharge.
-- Over $20 million to $21,739,130 = $1.5
million + 20% excess over $20 million 2) Acquired on/after 27 Oct 2012: No Stamp Duty payable. Transfer duty -- 13.3% Payable but rates vary depending £75,400
-- Over $21,739,130 = 8.5%. -- 6 months or less = 20% South Africa paid by buyer: on municipality.
-- >6 months but 12 months or -- R0 – R600,000 = 0%
Extra 15% on top of standard rates for less = 15% -- Over R600,000 = R1,000,000 = 3%
overseas buyers. -- >12 months but 24 months or -- Over R1,000,000 = R1,500,000 =
less = 10% R12,000 plus 5% on value above
-- >24 months but 36 months or R1,000,000
less = 10%. -- Over R1,500,000 = R37,000 plus 8%
on value above R1,500,000.
-- Up to EUR 1 million – 1% -- 33% -- Up to EUR 1 million = 0.18% £10,000 Stamp duty borne by seller: Income tax varies on time Exempt when owner-occupied. £10,000
Ireland -- Over EUR 1 million – 2%. -- Over EUR 1 million = 0.25% Thailand 2% Transfer tax, shared between property held and value.
(on value above 1 million). buyer and seller.30 – 31
Global Lifestyle living Inspiration from Canada
influences
Residents of modern developments are Like London, Vancouver and Toronto also
increasingly looking for more than an have incredibly diverse demographics,
apartment, often expecting so called but in terms of innovative design, these
on design “lifestyle packages”. These include a
gym, a pool and wellness centre, with a
steam room, sauna and treatment rooms.
cities stretch well ahead of London and
provide exciting examples from which we
can learn.
Arguably, London is behind the curve; in
Buyers exposed to New York full service spa and gyms were Most already incorporate a generous
international trends are the norm in the early 2000’s. In 2003, array of additional amenities, such as
London Albion Riverside pointed the way, large private dining and billiard rooms,
expecting ever more from but it was 199 Knightsbridge that set with adjoining professional kitchens and
their homes. The residential the new benchmark in 2005 with a five roof terraces, so that a ‘luxury house’
star concierge, valet parking, business lifestyle can be enjoyed, without the full
industry, increasingly with facilities, a swimming pool, a gym and price tag of the luxury house itself. This
international capital and treatment rooms, at the time managed is hugely popular with retirees who are
by The Hyatt Hotel. The developer was looking for a lifestyle change, rather
experience, are responding Hong Kong born Sammy Lee, who had than a traditional ‘downsize’. And for the
to these demands. This the international experience to see where younger generations, schemes like 21
London could improve. Nelson Street in Toronto have stunning
globalisation is having a rooftop bars with cabanas, sofas,
direct influence on the end The latest trend in London is the fireplaces, barbeque, hot tubs and private
emergence of the ‘Residents Club or party rooms.
product. In London this lounge’. Residents only access to a wide
has led to marked range of facilities, which might include Globilisation greatly
interactive meeting rooms and business
improvement in the centre, a lounge, private dining rooms, influences society and
underlying amenity offer. cinema, crèche and roof terrace. These lifestyle through the
have been offered as the norm for some
time in New York and across Asia. Many international sharing of
new-build developments also offer views, products, ideas, and
concierge services that can help with
all your lifestyle requirements such as culture. As individuals and
travel arrangements, restaurant bookings, their lifestyles have evolved,
theatre tickets etc. Some luxury schemes
have partnered with exclusive hotels; the it is natural that our homes
obvious example is Candy and Candy’s have too.
One Hyde Park partnering with the
Mandarin Oriental. In addition, Canadian developers have
capitalised on the unrelenting Chinese
This trend isn’t just in the super prime appetite for some time, being feng shui-
market. Developers in the more aware on every new-build and having
mainstream market are emulating the experts on-hand to advise in this regard,
top end of the market. Some developers as well as omitting unlucky numbers from
have provided more unique and unusual doors and floors. However, there is also
facilities, such as St George’s One an array of more specialised products
Blackfriars, where residents will have use now on the market; for example, ‘Olive’
of a “snow room” and “yoga terrace”; on Vancouver’s Cambie Street was
Fulham Riverside has outside badminton designed for people who love to cook
courts, while London Dock has a golf and entertain, so sacrificed bedrooms for
simulator. amazing kitchens, and made the most of
the Wholefoods at ground floor to aid the
It has been estimated that good facilities marketing campaign. Elsewhere, Festival
add significantly to the price. However, Tower in Toronto and Brava in Vancouver
the key is to provide an offering were both designed to incorporate the
appropriate to the scheme, its location respective Film Festival HQ’s in the
and implicit buyer profile. If the size of ground floor, providing residents access
the facilities is too big or too luxurious directly to the festivals but also the ability
for the scheme, it could fail, particularly to use the cinemas as private screening
as facilities add to costs and therefore rooms for the rest of the year.
service charges.32 – 33
City snapshot New York
Lower Manhattan, a market that used to Office to residential conversion incentives
In this section we provide an be dominated by office buildings, has
now adapted to be a ‘live, work, play’
can help meet housing demand,
increase property values, and attract
overview of key themes in a environment. The area bounded by new neighborhood amenities. However,
selection of global markets. Chambers Street to the southern tip of
Manhattan, and East River to Broadway
barriers to residential conversion include
complications with zoning/planning,
constitutes Lower Manhattan. As of community conflict, and possible strain
the first quarter of 2014, approximately on municipal services. Issues can arise
61,000 residents lived in lower Manhattan when it comes to rent stabilisation and
in 30,500 units. There are now 323 mixed- tension can exist when developers convert
use and residential buildings, with 2,288 historical buildings into residential uses.
units in nine buildings under construction.
These numbers are expected to rise However, the rate of conversion in
consistently as downtown becomes a Downtown looks likely to slow, due to rising
viable residential option for workers and a demand for office space, and rising office
growing student population. rents. This is being driven by the mass of
technology and creative startups moving
11m
downtown. A study released by the New
York Economic Development Corporation
estimates that high-growth companies will
need 17 million sq ft of space by 2025.
Population However, Class B and Class C office
space is shrinking, in part because of the
The projected growth for lower Manhattan residential conversion boom.
residents is 63,000 residents in 31,500
£230,000
units by the end of 2014 and 64,000 in
32,000 units in 2015. The luxury rental
market has taken root downtown. Lower
Manhattan ended the first quarter of
2014 with rent above the Manhattan- Average property price
wide average with median rental rates
at £2,040 per month and £33 per The revitalisation of downtown makes
RSF. Lower Manhattan’s vacancy rate the area more appealing for residents.
dropped to 1.54% during this same New office space additions with the
period. Residential rental conversions completion of World Trade Center
have grown in the past decade in the buildings have drawn business and retail
downtown Manhattan market. This to lower Manhattan. The 800,000 sq ft
trend is largely attributed to the NYC World Trade Center Transportation Hub
government program, 421-g. This houses the PATH station and 350,000
program provides “tax exemption and sq ft retail complex. The redevelopment
abatement for conversion of commercial of the South Street Seaport (Pier 17) will
buildings to multiple dwellings”. It was add another 365,000 sq ft of retail, dining,
implemented in fall of 1995 and expired and entertainment space in 2016. The
in 2006. However, many residential city has also invested £25 million in a
developments are still benefitting from capital reconstruction project to develop
the program’s incentives. Eligible projects the infrastructure of Broadway. There is a
include conversions in most of the areas new appeal for families in the downtown
in Manhattan south of Murray Street, City market. Imagination Playground, an
Hall, and the Brooklyn Bridge. innovative space designed by David
Rockwell designed to improve learning
through fun, caters to this growing
demographic.You can also read
