One time I bought real estate without even laying eyes on it. It was a small property. I ended up earning a decent return on my investment.
I was lucky. I’ve lost count of the number of friends and acquaintances of mine who’ve been badly burnt by buying real estate that looked good on paper – what was something else entirely in reality.
This happens a lot in Asia. Investors in this part of the world are ripe for the picking for developers in cities like London, New York, San Francisco, Vancouver, and Sydney. Asian buyers are cash rich, and love luxury new-build property.
Investors in Asia real estate – full stop. And many Asian real estate investors like to buy properties in countries that have lower political and legal risk than they experience at home.
Asian buyers are also used to closing a deal quickly. Hong Kong property investors will sign sales and purchase agreements within an hour or two of a viewing.
Often, they’ll sign there on the spot. I once bought four apartments on my American Express card in such a situation. Overseas developers and agencies love to tap into this trait.
Cities in Asia are constantly hosting agents and developers flogging shiny new properties “off plan”. The numbers of advertisements I see in the local press touting projects in London, Sydney or some other favoured destination says a lot about the conditions in that market.
Advertisements for London property are the most numerous. London is a valued “rule of law” country, and viewed by many Asians as the most important financial centre in the world. It is also known to be more tax and regulation friendly than the U.S. For decades it has been the preferred destination for people from all over Europe, the Middle East, Asia wanting to buy and hold some real estate as a hedge against conditions in their own countries.
Investors may have a general idea of the area they are buying into, but many don’t. They become victims of what can be a sophisticated sales exercise.
The glossy brochures don’t show what’s happening on the ground
On paper, you can’t see the smoke belching factory just down the road, or the noisy freeway running past the end of the block, or the rail line rattling past the back window. Or that soon-to-be high rise next door that just received planning permission.
A number of people I know have recently been tempted into buying brand new properties off plan in a certain area of central London. This area is undergoing a regeneration, a rebirth that has been more than twenty-five years in the making, and which is getting off the ground now.
It sounds good. The only problem, though, is that the number of new apartments that will be hitting the market over the next three to five years is unprecedented for central London.
Oversupply is a certainty. And with it, prices and rentals are going to come under pressure.
Yes, it will be a successful regeneration – over the next generation or so. In the meantime, prices will fall… and, but only with time, recover.
My guess is that it will be a decade, maybe more, before the market for these properties reaches today’s levels.I say this having experienced a similar cycle in London myself.
The people who have asked me about investing in this area of London may have some knowledge of the city. But have not been and visited the area where they are looking at buying.
They are simply unaware of the massive amounts of building going on in the area, and the impact that this is likely to have on property values.
And of course, the developers and agents do not want to come forward with this kind of information.
Just think about it. Why is the developer peddling his new building off-plan to buyers located thousands of miles away? Simple. He doesn’t want you to visit the site – and he thinks overseas buyers will buy what his local buyers won’t!
Why else go to all the expense of advertising his London or New York property in Hong Kong, Singapore, or Beijing? He reckons that overseas buyers will pay a price that the domestic market won’t – because they’d check it out and know better.
This is particularly true of London, where thousands of new high-rise apartments are springing up and being sold all over Asia, the Middle East, Eastern Europe. Why? Well the simple fact is that London folks really do not like living in high-rise developments. It does not suit them. Maybe they’ll get used to it, but that would be a slow process.
In the meantime they prefer low-rise living, with greenery on the side.
Asians, on the other hand in fact prefer high-rise living. They like the feeling of security that living in a safe, well managed apartment block can bring. The “lock up and leave” aspect of high-rise housing also has attractions.
Judging by London property advertisements I see in the local media in Asia, I’m amazed at just how big “Prime Central London” has become!
Remember… if it looks too good to be true, it almost always is….