An Anatomy of a Property Bubble: Case Studies On Malaysia, Singapore, the UK and US Part 2

The UK: About to Take Off

My take on UK is this: there are not many cities within the UK that are worth investing in. Student accommodation is a sham unless you buy it within the campus. Otherwise you are just competing with other homes. Forget about student accommodations in Manchester or Liverpool. Far cheaper to buy houses.

Hotels are a shortage in London and nowhere else, except maybe in Manchester and Liverpool. There's no tourism anywhere else. Room rates are shooting through the roof for London. There are few planning permissions granted in the last 5 years. A four star hotel in zone 1 can set you back by £200-300 per night during the April season.

Storage space is a new asset class that I've yet to explore. I believe the nett yields can reach 10%. But it may be difficult to exit because buyers are unable to obtain bank loans. Also the operator may just decide to hike management fees every year so a lot depends on how the deal is structured.

Newbuilds in London : same problem as in KL and JB

Asians are buying newbuilds in zone 1 and canary wharf, which are usually priced 10-30% above the resale market. But in the UK , the government plans a lot better than in malaysia. The developers have to get very strict planning approvals from local councils to prevent an over supply of luxury apartments that will end up empty, stealing valuable land from much needed affordable housing.

Newbuilds increasingly need a component of affordable housing to get approvals. Nevertheless, I believe the same problems will persist for foreign buyers: they often buy at future prices and will see their homes underperform for many years to come.

That is why as a rule, I dislike buying newbuilds unless they are strictly marketed to locals. The locals can sniff a deal better than foreigners so I follow the hound....

London's population is growing even faster than Iskandar. It's growing at 50-100k per year, similar to Singapore. There is a strong demand for homes , new offices and shops in London. The student population is growing in the UK, bringing opportunities to those who own homes near campuses...

The newbuilds in zone 1 are likely to give around 3-4% gross. This is around the same as the borrowing cost. On normal valuations, zone 1 is likely to be a bubble except for several differences between London and malaysia:

1) there is very little empty land in central London , unlike in Iskandar. The situation is quite similar to KLCC but better. In KLCC, you could still clear up squatters, kampungs right in the city centre for a penny and a song to build sky high mixed developments. But London cares a lot more for the environment, it must have public parks, retail and offices within the zone. Very well planned. Almost the same standard as Singapore's town planning.

2) the rule of law in London is unparalleled. It is of a higher standard than Singapore. In Singapore I have a bad experience of Living above a thai pub called Hi-So that banged away until 4 am. Despite gathering evidence of overwhelming noise pollution, and several tenants breaking their leases, the police refused to act. The MP also stayed silent on the matter.

3) London is a proven international city for education, finance, politics and general tourism. Even if yields are low the rich all over the world will want a stake in zone 1. Is like Sentosa Cove where yields are around 1-2%, but prices doubled in 4 years. Iskandar is unproven. Malaysia is third world and you can read the papers everyday about the problems that beset malaysia.

4) there is a perpetual shortage of homes in zone 1. Many wealthy londoners own one home in the country and another in the city centre. I don't think the supply will ever catch up with demand so rents will continue to rise even though yields are low. For Canary Wharf, I don't see much empty land either. Canary wharf employs 100k people and only 10k of them live there. Rents in luxury canary wharf are around 4-5% gross.

I believe those that bought zone 1 luxury properties , at £900-1500 psf, will not suffer as bad a fate as those who bought luxury homes in Iskandar.  Prices have already appreciated by 20-30% since the 2008 crash and I don't think they will appreciate at the same pace.

Prices in luxury properties in canary wharf will probably do better. The Cross Rail will shorten the traveling time to west end London. It will raise the prices of east end London like woolwich arsenal, Canary Wharf and Stratford. It will not do as much for zone 1 London though. The office space in canary wharf is expanding north , west wards. There will be more jobs created and rents will rise as fast as in zone 1.

I believe newbuilds in canary wharf could rise by 4% per year for the next 5 years, and those in zone 1 by 5% per year. This is about half of what the appreciation of resale homes. It's just too bad that developers cream off half the appreciation by luring buyers with snazzy brochures, exhibition halls , promises of superb rentals, pictures of unblocked views. The Asians really lap up those newbuilds sadly and there is little trickle down effect to the masses.

Plenty of opportunities in the resale market

Now before you accuse me of favoring London because I've bought several properties there, it's not true! I believe that US properties present the greatest opportunity, that's why I invested colony capital single family home fund. I think next year we will see European properties rise through the ashes, like in Dublin, Madrid, Barcelona, Athens, Milan and Rome.

Resale is typically 20-30% cheaper. I believe it gives me far greater capital appreciation than newbuilds. As usual, always buy somewhere near employers, transport links.

Mature boroughs with very little land plots left are the best and I believe zone 1, croydon and canary wharf have the greatest potential.

Cities like Aberdeen have very high income due to the oil and gas industry, thus presenting opportunities too. The price to income ratio of Scottish properties are the lowest in the UK.

I also like Dublin but I don't have the time to visit the place.