London's loss may be Asia's gain as property funds seek safe havens like Singapore

Costa Rhu Condominium in Tanjong Rhu, with the Singapore Flyer in the background.
Costa Rhu Condominium in Tanjong Rhu, with the Singapore Flyer in the background.PHOTO: ST FILE

SINGAPORE (BLOOMBERG) - London may have just shed its safe-haven property market tag with the UK's vote to break away from the European Union. That's good news for real estate markets in Asia that offer stability.

Singapore, Hong Kong and Australia, which face headwinds including oversupply and high prices, may see money flowing into property as investors flee to safer assets as volatility picks up, according to global commercial real estate services firm CBRE Group.

"Capital will look for safe havens, countries that offer stability," Henry Chin, head of research for Asia-Pacific at CBRE, said in an interview in Singapore. "Mature, developed markets will look attractive again."

Britain's vote to secede from the EU wiped almost US$4 trillion off the value of global equities, with investors selling riskier assets amid concerns that trade snarls and political paralysis will disrupt an already-fragile global economic recovery.

Japan may also benefit from the Brexit fallout.

"The world recognises Japan as a safe haven," Takeshi Akagi, national director at Jones Lang LaSalle, said. "Because of that, Asian money that has been looking to invest in Europe will come to Japan. As uncertainties unfold in Europe and spread out to global markets, Japan would, relatively, be considered as a predominant place to be."

Commercial property values could fall about 10 per cent over the next year, led by declines in oversupplied central London, BlackRock said in a note. Reduced tenant demand and a shift toward shorter lease terms are anticipated, while overseas investors are set to demand a larger risk premium, or more compensation, for holding UK assets, BlackRock said.

London office rents could fall 18 per cent within two years of Article 50 - which would set in motion the process to extricate the UK from the EU - being invoked, Jefferies analyst Mike Prew said on Friday.

International businesses could move 100,000 jobs out of the UK following the vote as they may lose their passporting rights, Mr Prew wrote. That's bad news for developers, which plan to build the equivalent of 50 skyscrapers the same size as the Gherkin, the iconic London office tower, in the next four years, he said.

"Investor sentiment will deteriorate further, subduing capital flows in the short to medium term," Chris Ireland, chief executive officer for the UK at JLL, said. "London sectors remain most vulnerable to a correction given current keen pricing and their multinational occupier base."

Still, for opportunistic funds, the UK will become attractive as the currency declines and prices drop, according to CBRE and JLL.

"With the Brexit event, one thing is a given: that interest rates are going to remain low for a long time and that's good for the property markets," CBRE's Chin said. "We will see value emerge in the UK over time but no one deals are going to happen in a hurry."