Urban Real Estate Is No Safe Haven

Agenda-Setting Financial Insight.
Sept. 4 2012 5:36 PM

Urban Real Estate Is No Safe Haven

In the London and Hong Kong real estate markets, it’s as if the financial crisis never happened.

Photo by PHILIPPE LOPEZ/AFP/GettyImages

Urban real estate may prove a deceptive safe haven. Investors seeking refuge from economic turmoil in the euro zone and mainland China are snapping up prime houses and apartments in the likes of London and Hong Kong. That risks crowding out locals. If the onslaught continues, cities may start to raise defences.

In the London and Hong Kong real estate markets, it’s as if the financial crisis never happened. The price of prime property in the centre of the British capital is up 49 percent since the spring of 2009, according to Knight Frank. In the former British colony, residential property is up 12 percent this year, and 89 percent since the end of 2008, according to data from Centaline. An apartment sold for a record $55 million last month.

Ultra-low interest rates offer a partial explanation: for those able to borrow, debt servicing costs remain relatively low. But residential property is also increasingly seen as a shelter from the risk of a euro zone collapse, or an economic hard landing in China. Just as investors are willing to accept negative yields on “safe” government bonds, buyers are more concerned about preserving their capital than earning a return.

The flight to safety is causing strains. Local buyers are squeezed out. If homes are left empty - as seems to be the case in some of London’s more desirable areas - the stock of available housing is also reduced.

High property prices can be a signal of a city’s success, when they are a by-product of attracting high-earning workers, whose income taxes and local spending then provide a welcome economic boost. But passive and possibly absent landlords bring few such benefits.

Hong Kong’s new chief executive has promised to restrict some flats to local buyers, though it is not clear how this would work. In the UK, the government’s only response has been to close a loophole that allowed foreign buyers to avoid tax when buying property. It’s possible that soaring prices will eventually persuade inhabitants of London and Hong Kong to become less obsessed with owning property. But in the absence of such a shift - or a market correction - investors in search of real estate safe havens should prepare for a frostier reception.

Read more at Reuters Breakingviews

Peter is the Assistant Editor of Reuters Breakingviews, based in London. He oversees coverage of financial services and regulation. Prior to joining Reuters, Peter spent 10 years at the Financial Times.


Medical Examiner

Here’s Where We Stand With Ebola

Even experienced international disaster responders are shocked at how bad it’s gotten.

It’s Legal for Obama to Bomb Syria Because He Says It Is

Divestment Is Fine but Mostly Symbolic. There’s a Better Way for Universities to Fight Climate Change.

I Stand With Emma Watson on Women’s Rights

Even though I know I’m going to get flak for it.

It Is Very Stupid to Compare Hope Solo to Ray Rice

Building a Better Workplace

In Defense of HR

Startups and small businesses shouldn’t skip over a human resources department.

Why Are Lighter-Skinned Latinos and Asians More Likely to Vote Republican?

How Ted Cruz and Scott Brown Misunderstand What It Means to Be an American Citizen

  News & Politics
Sept. 23 2014 12:43 PM Occupy Wall Street How can Hillary Clinton be both a limousine liberal and a Saul Alinsky radical?
Sept. 23 2014 2:08 PM Home Depot’s Former Head of Security Had a Legacy of Sabotage
Sept. 23 2014 1:57 PM Would A Second Sarkozy Presidency End Marriage Equality in France?
  Double X
The XX Factor
Sept. 23 2014 11:13 AM Why Is This Mother in Prison for Helping Her Daughter Get an Abortion?
  Slate Plus
Slate Plus
Sept. 22 2014 1:52 PM Tell Us What You Think About Slate Plus Help us improve our new membership program.
Brow Beat
Sept. 23 2014 11:48 AM Punky Brewster, the Feminist Punk Icon Who Wasn’t
Future Tense
Sept. 23 2014 1:50 PM Oh, the Futility! Frogs Try to Catch Worms Off of an iPhone Video.
  Health & Science
Sept. 23 2014 1:38 PM Why Is Fall Red in America but Yellow in Europe? A possible explanation, 35 million years in the making.
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.