London retook New York’s spot as the world’s hottest center for real estate transactions in the first quarter as investors – especially from Hong Kong and China – swooped onto bargains and high yields exposed by the drop in sterling and prices since last year’s Brexit vote.
“The depreciation and capital values drop means that UK commercial real estate is now discounted by 16% on average to overseas capital since the June 2016 referendum,” said David Green-Morgan, head of research at JLL, which has just released its latest report on capital flows in the global real estate market during the first quarter.
Hong Kong buyers alone spent almost US$3 billion on UK properties during the period, up from US$842 million a year earlier. The city’s buyers outspent global funds and all other foreign groups by a whopping margin of almost US$1.3 billion, the report showed.
In spite of a 63% surge in outbound investment from Japan, Tokyo surged into the top five most sought after cities, with US$4 billion of inbound transactions.
US cities maintained a strong showing, with Los Angeles holding onto second and New York, Boston and San Francisco in fifth, sixth and eighth place. Hong Kong and Seoul rounded out the strong Asian showing with seventh and 10th, while Vancouver surged back into the league at ninth, from 57th spot last year.
Despite increased government scrutiny, Chinese outbound capital increased by 84% in the first three months to US$7.5 billion, from US$4 billion a year earlier. Chinese buyers continued investing in Hong Kong, Chicago, Los Angeles and San Francisco, it said.
Still, volumes were down 36% on the previous quarter.
“The new outbound capital control measures are likely to slow down overseas investments, as Chinese corporates and individuals will find it harder to invest outside of China,” said Dave Chiou, director of China capital markets research at JLL. This is driving demand for domestic investment, he said.
That may add to the government’s problems in cooling its overheated property sector.
Global transactional volumes were US$136 billion in the first quarter, 1% down on a year earlier. Asia Pacific volumes rose by the same amount.