The news that a prominent Singaporean bank has placed a moratorium on new mortgages for customers buying London homes indicates that there will be further pressure on the prime residential sector in the UK capital in the wake of the Brexit vote.
UOB (United Overseas Bank), which is based in Singapore, has said that it will temporarily stop receiving foreign property loan applications for London properties. “As the aftermath of the UK referendum is still unfolding and given the uncertainties, we need to ensure our customers are cautious with their London property investments,” the bank said.
Separately, another Singaporean bank, DBS (Development Bank of Singapore), has said that it is continuing to provide mortgages, but that it is advising its customers to be cautious. “With foreign exchange risks, even if the value of the overseas property rises, any gains will be eroded if the country’s currency depreciates against the Singapore dollar,” DBS executive director of secured lending, Tok Geok Peng told the BBC.
Asian buyers have been a key source of demand for high-end London homes in recent years. According to Knight Frank’s Global Cities 2016 report, Singaporean investors accounted for $6.4 billion of investment into UK property between Q3 2013 and Q2 2015, the largest source of capital from Asia. However, as early as Q3 2015, there were concerns in the market that demand from Asian buyers of high-end London apartments had cooled as a result of the Chinese stock market crisis.
Developers have found it more difficult to source finance for residential build-to-sell schemes in London this year, amid concerns about softening demand from buyers. Schemes aimed at buyers paying over £1,000 per square foot have been particularly hard hit, according to sources. Speaking recently, one market player said that there was nervousness in the high-end London residential market, especially at the £2,000 per square foot end of the spectrum: “It’s come off in terms of volumes, the market is slow. However, for those in relatively affordable locations in London, the market is fine.”
In its EU Referendum: Making Sense of Brexit Five Days On report, published today, JLL said that high-end residential in London is susceptible to weakened demand, although the agency argued that the fall in sterling will attract overseas demand from purchasers from dollar-pegged markets such as the Middle East and Asia.
“London developers may be forced to curb supply in response to rising costs, given a greater exposure to high-density schemes that require bigger financial commitments,” JLL wrote. “This may serve to weaken supply and ultimately place upward pressure on price, particularly if there is an uptick in demand from international purchasers leveraging the currency arbitrage.”
The agency added that some developers might be forced to reconsider their schemes’ target markets: “What is undoubted is rental demand and so even if the for-sale markets softens we anticipate some ‘for sale’ schemes will be switched to the burgeoning build-to-rent market, where institutional investment demand will continue to strengthen despite the referendum outcome.”
In March, JLL altered its central London residential price growth forecasts, which were initially published in November 2015. The firm said that demand had deteriorated, driven by a deepening of global economic uncertainty, notably from China, as well as the imposition of an additional 3 percent stamp duty for second home purchasers.
According to Knight Frank, prices in prime central London dipped by 0.1 percent on average in May, taking the annual increase to 0.1 percent. The agency said that the figure masked a “multi-speed” market, with average prices in Chelsea down 3.5 percent while prices in the City and City fringe were up 6.4 percent on the year.
Lenders have remained prepared to finance selected schemes. Real Estate Capital revealed this month that Royal Bank of Scotland has provided a £70 million loan to residential developer Mount Anvil for the redevelopment of the listed Hampstead Manor, a former King’s College London student residence, into 125 houses and flats. One-bedroom apartments will be priced from £750,000.
“Funders remain selective, and in our experience will consider the credentials and track record of the developer, the location and type of product being provided and the sales prices (both pounds per square foot and capital value) as part of their assessment of the lending”, said Mount Anvil director of marketing Jon Hall.
Damac Properties recently appointed Barclays to put together a club of lenders to provide more than £200 million of senior debt for the development of its luxury AYKON Nine Elms residential tower. The tower is informally known as the ‘Versace Tower’ due to the fact that the Italian fashion house is designing its interiors.