Favourable currency exchange rates spur buying sentiment: Savills
By Timothy Tay
/ EdgeProp Singapore |
Luxury residential sales in London over the first nine months of this year were higher than any full year between 2015 and 2022.
SINGAPORE (EDGEPROP) - Accounting for the recent exchange fluctuations of key global currencies, now might be the best time for opportunistic investors to snap up prime real estate in competitive property markets like London, says Paul Tostevin, director of world research at Savills.
“For those who earn in dollars and have those dollars available to spend on residential property, the time has never been better for buying prime property abroad,” says Tostevin.
He says that the strength of the US dollar over the past few months means that investors purchasing properties with the US dollar will benefit in two ways: Compared to a year ago, they will either spend less in US dollar terms for the same property or get a bigger property with the same budget.
For example, on average, a US$1 million ($1.37 million) budget would buy a property 14% larger based on the price psf for most global prime residential markets. According to tracking data from Savills, the cities where investors will buy the biggest additional square footage are Cape Town (+895 sq ft), Barcelona (+331 sq ft) and Bangkok (+210 sq ft).
Meanwhile, buyers looking to add to their portfolio of prime London properties are likely to see a 28% increase in the amount of space they can now purchase compared to a year ago, says Tostevin. On average, US$1 million would have bought about 609 sq ft of prime London residential property in September this year, up from 477 sq ft in December 2021.
Increases to nterest rates could peak by mid-2023 and return to a more neutral rate of increase in 2H2023, says Tostevin (Picture: Savills)
In comparison, buyers in Singapore enjoy a 6% increase in property size with the same US$1 million budget compared to a year ago. This comes as the resilience of the Singapore economy buoys its currency against a volatile macroeconomic environment, says Savills in an October report.
“Dollar buyers in London gain an extra 132 sq ft for US$1 million, an increase of 28% since the start of the year. While rising from a low base, this additional square footage means US$1 million buys just over 600 sq ft of prime London property,” says Tostevin.
Certainty returns to prime London
He adds that the recent uncertainty in the UK resulted in a significant pound sterling depreciation against the US dollar. “This pushes London front of mind for many dollar-flush buyers looking to purchase property abroad. In particular, Prime Central London looks good value to US dollar-denominated buyers,” says Tostevin.
He adds that the UK housing markets are already seeing a significant boost in price growth as people reassess their housing needs and demand for homes in key cities returns. “What we have seen in the last year or so is a real return to cities, London included, as people come back to living and working there”.
Reports from Savills agents in London indicate that international high net-worth buyers have started to return to traditional prime postcodes in London over the last couple of months as pandemic-related travel restrictions ease,
In particular, high net-worth buyers eye prime neighbourhoods like Chelsea, Belgravia, Kensington, Mayfair, Notting Hill and Holland Park, says Tostevin. He adds that given the limited supply of available prime residential properties, there is a spillover of buying interest for new projects such as London Square Nine Elms and Battersea Power Station.
An artist impression of the retail podium at London's Battersea Power Station.
Based on sales data compiled by Savills over the first nine months of this year (9M2022), the total sales in the London luxury segment were higher than any full year between 2015 and 2022. This is because of the return of international buyers and the rebound of the prime central London property market. “It has been a while now since we’ve seen the peak in prime London properties, so there is an opportunity for savvy buyers to move into that market, especially when you consider the favourable currency savings,” says Tostevin.
In general, confidence among buyers in London has returned now that normalcy is in place at the top of British governance but the bigger issue of interest rate hikes still overshadows the medium-term sentiments, says Tostevin.
“It is worth remembering that the UK mortgage market has faced stress tests over the last five years. So those homeowners coming off their fixed rate mortgages should be in a stronger position to weather the higher costs,” he says.
He expects interest rate increases to peak by mid-2023 and return to a more neutral rate of increase in the second half of the year. “If buyers can weather the immediate challenge of interest rate hikes, then there could be some positivity on the horizon,” says Tostevin.
Outlook
At the start of this year, Savills laid out what was expected to be the most in-demand sectors for real estate investors and buyers in 2022. According to Tostevin, the consultancy’s outlook focused on living properties and industrial markets. “Industrial markets have remained resilient with occupancy levels exceptionally high and tight vacancy rates,” he says.
The black swan event this year was the war in Ukraine which has impacted energy prices and inflation. In turn, they affect the interest-rate environment. “It has definitely been a big headwind this year, especially for the commercial real estate markets,” says Tostevin.
ESG remains at the forefront for many institutional investors and is playing out most significantly in the office sector where a two-tier market is emerging. Tostevin says, “On one side are occupiers demanding best-in-class certified buildings. That is leaving the rest of the stock being pushed to be redeveloped or repurposed.”
Looking ahead to 2023, Tostevin says he will be keeping a close eye on the direction central banks are heading because it will drive investor and buyer sentiment.
“We’ll also keep an eye on our office occupiers. Overall, the global jobs market is still quite strong but it is important to keep examining the hiring numbers because that acts as a forward indicator of the relevant property markets,” he says.
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