Far East buyers beware in London property rush
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LONDON (Reuters) – When Hong Kong businessman Mr. He paid a 35,000 pound ($56,000) deposit on a four-bedroom apartment in Britain, he believed it was a 40-minute walk from central London, his lawyer says. In fact it was a 40-minute journey by high-speed train.
The 350,000 pound home was in Lincolnshire, eastern England. He sued the developer for misrepresentation last year, getting his money back before the case got to court in what his lawyer told Reuters was an attempt by the developer to avoid its marketing material being splashed around a courtroom.
His experience shows the potential pitfalls facing a growing number of Far Eastern people buying British homes unseen as developers target places such as Hong Kong, Shanghai and Singapore because British buyers are struggling to get mortgages.
“It is a matter of developers saying: ‘Here are some people who are likely to be interested. They probably do not know too much about the market, so why don’t we advertise there’,” said David Eldon, former chairman of HSBC’s Asia unit who has witnessed the practice during two decades in Hong Kong.
“I think they are being a little economical with the truth,” he told Reuters, saying properties could be sold for higher prices in the Far East.
Major developers including Barratt, Taylor Wimpey and Berkeley have stepped up efforts to court cash-rich Far Eastern buyers since 2009 after the global financial crisis sapped demand at home. Developers do not all use exactly the same marketing methods.
Berkeley said it had had many repeat purchases from Asian buyers over 20 years, although it acknowledged a mistake in one of its press releases. Taylor Wimpey said it offered a high level of service to all customers. Barratt declined to comment.
The number of Chinese and Pacific Asian buyers of the best quality newly built London homes jumped to 37 percent in 2010 from four percent in 2009, data from property consultancy Savills showed. The majority purchase for investment and are used to buying off-plan – before the home is built.
Mr. He was told his flat was 40 minutes from central London at a face-to-face meeting with the developer, said David Linklater, head of litigation at law firm Alan Broadhurst, who represented He. Broadhurst declined to give his client’s full name or the developer’s identity.
“Lots of people go to the fairs in Hong Kong and get a sheet of paper with a picture of Big Ben. You think you are going to be the Queen’s neighbor when actually the Queen has a great big garden with a big wall around it,” said Linklater, who deals with 20-30 unhappy overseas buyers a year.
PICTURES OF HARRODS
Sold at exhibitions in plush hotels, many properties are not in the most desirable London neighborhoods despite the prominent pictures of Harrods or Buckingham Palace. Details of exact locations tend to be omitted rather than inaccurate.
“There is a lot of embellishment going on working off the naivety of the Chinese buyer,” said James Moss, managing director of property consultancy Curzon Investment Property.
A brochure advertising 375 Kensington High Street, a luxury London scheme marketed in the Far East and developed by a Berkeley joint venture alludes to the proximity of the High Street Kensington underground station in a brochure entitled “London’s most sought after new address”.
The station, which is at the heart of one of London’s most popular shopping districts, is a 15-20 minute walk away while the flats are at the scruffier end of the same long street and closer to two other tube stations.
In a press release issued in Hong Kong on Friday, the development was described as “a short walk from the luxury shopping available at Harrods”. The world-famous store is a 50-minute walk according to the Transport for London website.
“To an unsuspecting buyer, you think wow, it is amazing, but actually it is the wrong end of Kensington High Street, right next to Kensington Olympia,” said Camilla Dell, managing partner at Black Brick Property Solutions, which helps overseas buyers find London homes.
A Berkeley spokesman said the “short walk” description was “an error”.
“We have had a lot of customers from Asia over the last 20 years, many of whom are repeat purchasers,” he said.
“It (the development) has excellent transport links and easy access to well-known shops; the distances to which are clearly marked in our brochure. In addition, by far the majority of buyers have or will visit our developments before buying.”
Ingrid Skinner, managing director of Taylor Wimpey Central London, said: “Buyers need to be able to trust the company they are buying from. At Taylor Wimpey we offer the same high level of service to all of our customers.”
HIGH PRESSURE
The ballrooms of Hong Kong’s luxury hotels hold property shows nearly every weekend. The city’s two Mandarin Oriental hotels are particularly popular.
At one event attended by Reuters on Friday, prospective buyers were offered San Pellegrino bottled water, chocolate cupcakes and a choice of finger sandwiches. An HSBC banker was on hand to help with financing and a lawyer in case a purchaser was ready to sign.
Buyers can feel the pressure.
Judith, a native of Zhejiang in China who lives in London and declined to give her full name, said her father paid the deposit on six off-plan flats in Colindale, north London, at a Shanghai exhibition a year ago despite the fact she warned him about its remote location.
“The moment my father sat down, the agent wanted him to pay a reservation fee. Once he showed that he liked them, they said he had to pay the fee or someone else would snap them up,” she said.
They are in a legal dispute with the agent in an attempt to recover 24,000 pounds, claiming they were sold the properties on the basis they could be converted into nine units, which they subsequently discovered was not possible.
“The developer and agent are not obliged to educate the buyers, it is down to the buyers to educate themselves,” said Ken Xiao, president of Chinese Property Professionals Society in London. “Of course the agents will try to show the shiny side because they are trying to sell the property.”
There may be little legal recourse. Those buying new homes as an investment are not protected under the National House Building Council’s consumer code as opposed to those looking to occupy them, a spokeswoman for the watchdog told Reuters.
Estate agents said overseas buyers of property as an investment were at risk of getting lower-than-expected returns as the mass marketing of the homes at events meant many landlords would likely have to vie for tenants all at once, pushing rents down, Dell said.
“I have yet to see a development where the rents have exceeded the advertised rent,” said Ashley Jones, managing director at London-based estate agent Barclay Residential. “I cannot see all of this having a happy ending.”
($1 = 0.6282 pound)
(Additional reporting by Alex Frew McMillan; Editing by Tom Bill and Matthew Tostevin)
