Sunday, 25 January 2009

London Real Estate Value Declined by 55% in JPY

I am visiting London right now for client meeting. Because of steep decline of GBP (British Pounds), at last, we don't feel like we are "overpaying". In addition, economy in UK is facing severe slow down due to meltdown of financial system and credit crunch. Therefore you can find tremendous bargains and discounts at retail stores and at restaurants. You can find the value in London now --- I highly recommend visiting London now!

Anyway, today I looked at properties in prime central London neighborhoods. In terms of GBP, it is said that there has been 20% decline from summer 2007- the peak of real estate market. If you go beyond prime central neighborhoods, property value has declined much further.

In addition, GBP has declined quite a lot since summer 2007. London real estate market is now crowded with foreign buyers.

The below is chart that show how much £3.0m property in September 2007 declined in key currencies. As you can see, in JPY, US$ and Euro respectively, it has declined by -55%, -43.5% and -42.2%.

Based on article from Financial Times, it looks like 70% central London real estate buyers are from overseas.

It is quite funny that, back in late 2007, at the time GBP was valued twice as much as US dollar, British buyers are most prominent ones in Manhattan real estate market --- such a reversal of fortune!

This clearly shows economic and cultural prominence of London and New York City --- so I think decline of London real estate is somewhat limited.

Having said that, I believe London real estate market faces the following challenges:
  • Due to economic slowdown, rental market has declined around 20%, making average gross yield at around 4-5% --- still quite high for historical standard.
  • It is extremely difficult to get financing, especially foreign buyers. Looks like you need to bring in at least 40%+ down payment.
  • Average Price Per SQF is hovering around $1300, compared to $1000 in Manhattan.
  • You have to invest minimum GBP400,000 in prime central London market.
Therefore, I personally see 10%-20% price adjustment over next 24 month.

Having said that, for those who own quite a bit of Japanese Yen, I think it is wise investment to own prime London property at this exchange rate. I truly believe that London will continue to play key role in global economy, politics and culture so real estate market will eventually recover.
Happy Investing!!!!

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