Hong Kong developers are increasing their investments in London, betting on higher yields as more Hongkongers head to the UK under the British National (Overseas) visa scheme.
There has been a surge of Hong Kong money going into the UK’s property markets in the last two years, according to Kino Law, chief executive officer and chairman of K&K Property Holdings.
This is probably because of the British capital’s higher rental returns compared to other gateway cities, and the relaxation of immigration policy for BN (O) passport holders, he said.
“The trend is [mainly] due to diversification and to create a more healthy investment portfolio to help the developers to fund their projects and create a more healthy balance sheet,” said Law.
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“Hong Kong developers, from my perspective, always very [much] have an international and global perspective.”
Hong Kong developers that have invested in London included Sun Hung Kai Properties, CK Asset Holdings, New World Development, Link Reit and Far East Consortium.
BN (O) status was extended to Hongkongers born before the city’s handover to China on July 1, 1997. As many as 5.4 million Hongkongers, including their dependents, are believed to be eligible for the BN (O) visa scheme.
Under the programme, people from Hong Kong can apply for an initial visa lasting up to five years to live, work and study in the UK. The visa scheme, introduced following the imposition of Beijing’s controversial national security law for Hong Kong in June 2020, allows for an easier path to British citizenship.
K&K has a portfolio of properties in London’s West End worth about HK$4 billion (US$513.6 million). Law sees this potentially expanding by about 50 per cent over the next five years.
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The developer recently made its fourth acquisition of landmark commercial property in Central London within the last two years. It paid £66.1 million (HK$697 million) for 15 Adam Street, an office building with a retail component.
K&K’s London portfolio has an overall occupancy rate of 93 per cent. Most tenants are international firms and tech companies.
The London portfolio currently generates £17.3 million in rental income each year, Law said. That translates to a yield of 4.6 per cent.
In comparison, commercial assets in major European cities are trading at around 3 to 3.5 per cent, while those in Hong Kong and Singapore are trading at 2.5 to 3 per cent, he said.
The West End – traditionally London’s theatre district – has attracted a number of tech start-ups as well as established international players in recent years. Google just bought its second headquarters there, next to Endeavour House, which belongs to K&K, Law said.
Office leasing inquiries in the area have increased 20 per cent in the last two months, as the Covid-19 situation improved, Law said.
He also believes there is a currency benefit to investing in the UK. The pound sterling is “trading well below the long-term average”, with a “15 to 20 per cent upside”.
The biggest obstacle to the first of K&K’s acquisitions in London was lack of credibility, said Law.
“The local UK market just didn’t know us well enough to trust us,” he said. “When we first purchased Orion House in 2019, I was thankful that I met the managing director from [the largest specialist Central London office fund] Welput in London and he believed in us enough to complete the transaction.”
The Hong Kong market will continue to be K&K’s main focus as it continues to participate in the government land sale market, said Law. K&K’s commercial investment portfolio in the city is worth about HK$7 billion.
“In the next five years, we aim to reach total assets under management of HK$20 billion, with an asset allocation of 30 per cent overseas investment and 70 per cent Hong Kong investment,” said Law.
By Lam Ka-sing