Asian and Middle East investors pile into London property

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The attraction of London, which last year cornered more international property investment than any European country, reflects the growing pressure on large, cash rich investors to diversify away from the bond markets amid a period characterised by low interest rates and volatile equity markets. (Photo credit: E01, flickr)

The attraction of London, which last year cornered more international property investment than any European country, reflects the growing pressure on large, cash rich investors to diversify away from the bond markets amid a period characterised by low interest rates and volatile equity markets. (Photo credit: E01, flickr)

By Ed Hammond and Property Correspondent, Source: FT.com

The attraction of London property to foreign investors shows no signs of waning as a surge of Asian and Middle Eastern money ensured that UK buyers accounted for less than a fifth of all commercial purchases during the first half of the year.

Overseas investors were behind 82 per cent of property transactions in the City of London during the six months, a record high of £4.15bn, underscoring the demand for high value property at a time of low interest rates and weak sterling.

The investment, which coincided with strong overseas spending across the capital’s office and retail property markets, meant that international buyers accounted for three quarters of the total £5.5bn commercial transactions in central London during the first half of the year, according to research from BNP Paribas Real Estate.

The demand for property in central London – long the preserve of domestic and US institutions – has been driven during the past two years by a coterie of increasingly ambitious sovereign wealth and pension funds. At the forefront of the new wave of investment has been the government backed funds of Korea, Singapore and Malaysia.

Richard Garside, a director for BNP Paribas in London, said much of the cash seeking a home in London’s property market was from the newly deregulated economies, such as China. “All parties are attracted to London by the high quality of investment stock and the mature and transparent nature of our market,” he said.

The year has been punctuated by a series of high-profile, high value deals in central London – the latest being the £260m purchase last week of the Lord Rogers-designed Lloyd’s building by Ping An, the Chinese life assurer. Other sizeable transactions included the Kuwaiti government’s £385m acquisition of Bank of America’s European headquarters in Canary Wharf and the Malaysian pension fund Kumpulan Wang Persaraan’s purchase of a City office block for £215m.

Spending by Asian investors accelerated rapidly during the three months to the end of June, with the region responsible for £1.04bn during the first quarter, up 166 per cent on the previous three months.

The attraction of London, which last year cornered more international property investment than any European country, reflects the growing pressure on large, cash rich investors to diversify away from the bond markets amid a period characterised by low interest rates and volatile equity markets.

The central London office market has been highlighted by investors for offering a government bond-like risk profile but significantly better yields, typically between 4 and 6 per cent. The investment has helped to fuel a development boom across the capital and has ignited hopes of a recovery in office values.

London’s ability to attract overseas funds has not been shared by the rest of the UK, with the capital’s property market increasingly dislocated from that of the country. The gap between London and elsewhere was underlined by recent figures from the Heath and Safety Executive showing that, in spite of being home to only one in eight people in the UK, London has more active cranes than the rest of the country combined.

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