What impact will an exodus from Hong Kong have on UK house prices?

by Shaun Richards

One of the features of the UK property market is that Mr Micawber pretty much always turns out to be right with his claim that something will turn up. Each time it looks set for a decline then there is a change which bails it out meaning that the last sustained drop in house prices was in the period 1990-92. So you have to be at least 30 to even be alive when it happened and of course in your forties to really remember it. From that situation we have seen the view that property is the best form of investment gain strength and going as far as some claiming you cannot lose money. The latter is a step too far because Northern Ireland has shown that you can. However whilst a global pandemic can do many things and has completely disrupted life we see this as the state of play.

Prices in March continue to climb, with annual rates close to 10%

That dropped into my email inbox only yesterday from Acadata and if we look deeper they are really rather bullish.

“This month’s Index shows that in the last year, England and Wales have seen the average price of a
home increase by some £30,000. On an annual basis, this is the highest rate of increase for over 6
years. It is a very clear statement about the resilience of the housing market and how well it has
responded to the challenges of the pandemic and the fiscal remedies that have been administered in
the last year. This level of sustained price growth underlines how well the property market continues
to perform in comparison to other areas of the economy.”

I do like the claim about “resilience” followed by a confession about “fiscal remedies” but an omission of all the monetary policy easing such as a Bank Rate cut to 0.1% and all the QE bond buying of which there will be another £1.48 billion this afternoon. Other areas of the economy might do as well if they got the same support!

Hong Kong

This influence chimes with me partly because I live in Battersea and some of the regeneration of the famous power station was financed from Singapore and Malaysia. That was one of the previous things which turned out and now Reuters adds this.

Britain decided to open its borders to residents of the former colony after China imposed a draconian national security law. That’s prompted many to explore a permanent move to the United Kingdom. A smartphone app for UK visa applicants was the second-most-popular download for iPhone users in Hong Kong since it became available in February.

It would add to a long-running trend.

Purchases have also picked up. About 4% of international property buyers in London last year were from Hong Kong, making them the fourth-largest group, Knight Frank reckons.

Maybe Bob Marley was thinking ahead.

We’re leaving babylon,
We’re going to our father land.
2, 3, 4: exodus: movement of jah people! oh, yeah!

One group is making a big investment.

For CK Asset, the plot known as Convoys Wharf is a long-term bet……….On the south bank of the River Thames in London, halfway between London Bridge and Greenwich, is a plot of land that has been deserted for about 15 years. A heavily guarded fence is the only clue for passing pedestrians that the derelict 17-hectare site is potentially valuable.

Actually that is rather poor journalism at the end as let’s face it there are probably people in the Amazon jungle who are aware that London property is valuable/expensive. Still the bit below could come from an episode of Yes Prime Minister with Jim Hacker saying “What a happy coincidence”

Permission came through last July, just as Prime Minister Boris Johnson unveiled a new path to British citizenship that is open to millions of Hong Kong residents.

Part of the attraction of London is that relatively it is this.

Ooh-we, chirpy, chirpy, cheep, cheep
Chirpy, chirpy, cheep, cheep, chirp ( Middle of the Road)

Or as Reuters puts it.

That’s partly because Hong Kong’s notoriously overpriced real estate market is even more expensive than London’s. The average home in the Chinese city cost $1,987 per square foot in 2020, two and a half times the British capital’s average, CBRE data shows.

There are two perspectives on the next bit. The first is that in an era of ZIRP or a 0.1% official Bank Rate the number below looks attractive. The second is that yield has been relegated a long way below potential capital gain as an objective these days.

Buyers are also attracted by the relatively plush rental yield on London real estate, which exceeded 3% last year.

I would have though that a mention of the difference between gross and net ( after costs, bills and possible void periods) merits attention. Later it does get pointed out that it has not been the best year for rental income.

The average rent in London dropped to 2,219 pounds per month in the last quarter of 2020, down 12.4% on the year before, according to Rightmove.

Is the population falling?

Apparently there is a bit of a plunge going on according to Reuters.

Yet the rush of property development is at odds with London’s falling population. An estimated 1.3 million foreign-born workers left the United Kingdom during the pandemic, according to an analysis of government data by the Economic Statistics Centre of Excellence. The enforced shift to home working has also encouraged some Londoners to move further out.

Actually my understanding of that work was it said may and up to. That is brought into further perspective when the Office for National Statistics suggested the number may well be a million less! If you look at its quarterly population survey they estimate it was 67.36 million at the end of last year as opposed to 67 million at the end of 2019, so a rise.

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Therefore I counsel caution on this whole topic. The truth is that we have been rather unsure of what the UK’s population actually is for some time. Therefore we cannot have much idea of changes to it.

Caution should also be applied to estimates of how many will arrive.

The UK Home Office reckons that up to 460,000 Hong Kong residents and their families could arrive in the next few years, while Bank of America estimates that emigration could lead to HK$280 billion ($36 billion) leaving the Chinese city this year.

Comment

There is a lot going on around China as I note its sabre rattling towards Taiwan. Looking at Hong Kong itself things seem to be continuing in terms of repression.

Four intruders barged into the printing plant of the Hong Kong edition of The Epoch Times in the early hours of April 12, damaging computers and printing equipment in an attack believed to be the latest effort by the Chinese Communist Party (CCP) to silence the news outlet.

So we can expect people to leave in large numbers and many seem set to come to the UK. Although returning to Reuters not all plan to come to London.

Far East Consortium, a $900 million Hong Kong-listed company, is building about 21,000 homes in cities including Manchester and London, according to data from Liber Research Community.

The BBC will be pleased as it produced a series to plug Manchester property not so long ago. As a South Londoner it is hard not to smile at Croydon becoming fashionable.

In Hong Kong, newspaper ads and YouTube influencers tout the appeal of moving to places like Brighton and Croydon.

Whether this will be enough to deal with the backwash from the end of the Stamp Duty holiday I doubt but it would be likely to reduce any decline.

The commercial property bit I have to confess I do not get at all.London is surely overpopulated with skyscrapers as what are they going to do with Canary Wharf for a start?

Hong Kong-based Tenacity has won approval to build two new skyscrapers in the City of London. One of them will be a 30-storey tower neighbouring the “Walkie Talkie” building at 20 Fenchurch Street, which was bought by Hong Kong conglomerate Lee Kum Kee in 2017.

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