In 2022, Singapore-based investors channelled an impressive £9.5bn ($11.87bn) into the UK’s real estate market, a 120% increase compared with 2021, according to the latest report from Real Capital Analytics. In contrast, the US received only $1.7bn from Singapore in 2022, despite its larger real estate market. The capital invested in 2022 was predominantly allocated to UK office and residential assets, including the student accommodation market, which has robust income returns.
To understand this phenomenon and find out how the UK real estate sector can keep the money flowing, Jamie Harris of Harris Associates talked to Desmond Sim, CEO of Edmund Tie, a Singapore-based real estate consultancy. A year ago, Edmund Tie established a partnership with the UK-based investment agency Harris Associates and has witnessed the influx of direct interest from Asian capital investors into the UK real estate market.
The search for yield and stability
Over the past few decades, the attraction of Singapore’s political and social stability and highly regarded financial market has prompted an influx of capital from countries such as Japan, Indonesia and China – much of which had previously been concentrated on Hong Kong. Yet this has inadvertently compressed yields and returns on local investments, propelling these investors to seek opportunities abroad to achieve higher returns.
The stability of the UK’s foreign exchange, the strength of its currency and the buoyancy of new residential sectors make it an attractive destination for Singaporean investors looking to diversify their portfolios and escape the negative spreads caused by low yields in their domestic market.
The UK’s allure of similar rules and mindset
However, the appeal of the UK extends beyond higher yields and the promise of reduced risks. Compared with Singapore, where almost all properties are leasehold, the UK offers the possibility of purchasing freehold assets. Crucially, the UK’s transparent rules and regulations align with the aspirations of Singaporean investors, who hold transparency in the highest regard when conducting business.
The decision to pivot towards the UK emerges as a coherent response to the challenges encountered in a selection of neighbouring Asian markets, tainted by some unsavoury practices such as obscured ownership information and concealed commissions. “You can deliberate and negotiate for months, only to discover that the individual you were transacting with doesn’t even possess ownership of the land,” says Sim.
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Preference for reliable management
When analysing office spaces, Singaporean investors prefer assets overseen by dependable and trusted third-party providers. In this context, the majority of London’s iconic office buildings in the West End and the City of London adhere to these preferences.
Singaporean investors recognise the stability and appeal of office investments, especially when backed up by dependable operators and long leases. “Despite concerns about rising vacancy rates due to the rise of remote work trends, London’s office spaces in the esteemed precincts of the West End, Soho and Mayfair remain robust examples of demand resilience and astute management,” says Harris.
Cultural bonds determine interest in student accommodation
Cultural familiarity resulting from numerous Singaporeans’ educational pursuits or their children’s academic endeavours in the UK is a critical factor guiding Asian investments. This contributes to the allure of purpose-built student accommodation (PBSA) as a valuable asset. In 2022, Singapore’s sovereign wealth fund, GIC, orchestrated a massive £3bn (S$5.11bn) infusion into the UK’s PBSA sector in collaboration with Greystar, a strategic move that saw it acquire Student Roost, the UK’s third-largest provider of purpose-built student accommodations.
“For investors, PBSA garners admiration due to its intrinsic potential for elevated yields and its reliance on trusted third-party operators for management, with yearly rent rises,” says Harris. Furthermore, given an anticipated shortage of roughly 620,000 student beds as projected by StuRents, coupled with the sector’s growing popularity among international students, the PBSA sector is more lucrative than ever.
UK’s resilience amid Brexit and market fluctuations
Despite the cacophony of Brexit concerns and the ups and downs of the UK financial markets, one constant remains: the UK retains its primary role as a preferred centre for Singaporean investors. According to Harris: “UK developers and partners must effectively position themselves to appeal to Singaporean capital through transparency and a focus on key sectors of interest such as PBSA and offices.”
Given the structural undersupply of residential sectors, the UK’s real estate sector can continue to be an enticing and sought-after refuge for Singaporean investors, providing them with the coveted promises of steady development and diverse paths for advancement.
Strategic alliances for Singapore investors in UK real estate
Singaporean investors seeking return, stability and transparency have been drawn to the UK’s real estate market by its magnetic charm. An extraordinary boom in investment, spanning commercial spaces, residential complexes and purpose-built student housing, attests to the resonance of British assets with Singapore’s discriminating capital.
The UK’s real estate sector, bolstered by a synergy of shared values, strategic partnerships and a commitment to unwavering transparency, is poised to maintain its ascendancy as a beacon of opportunity for Singaporean investors, embarking on a journey marked by sustained growth and prudent diversification. This will only become more pronounced as other Asian countries expand, channelling cash via Singapore and eventually into the UK.