Hang Kei Ho, Department of Social and Economic Geography, Uppsala University
Rowland Atkinson, Department of Urban Studies and Planning, University of Sheffield
How do we make sense of the current housing crisis in London? Existing academic research and the popular press tends to tell us two things. Frist, the introduction of the Right to Buy scheme in the 1980s by the Conservative government that allowed council tenants to purchase their homes from the state at a heavily subsidised rate created a shortage in public housing. Coupled with the lack of political will to build more residential properties in the last three decades as well as the high demand from the national and international workers and students the rental market and property prices have been pushed to record high levels. Second, global cities like London have long been a playground for the wealthy. Subsequently, the super-rich from Europe, Russia, the Middle East, and most recently, mainland China have been purchasing luxury residential properties in prime locations such as Kingsbridge for capital growth or to store assets in property which can be released when it is needed.
Cranes on London's skyline. Photo: Hang Kei Ho
While both of these observations are important they tend to neglect the role of middle-class investors. In cities like Hong Kong many middle-income households have been buying properties in the UK for more than quarter of a century. Here financial literacy combined with high savings rates and increasing anxieties about the future are driving these capital flows.
Our research approach has been to follow the money – examining capital investments and motives via interviews, attending property fairs, and visiting development sites in Hong Kong, London, Aberdeen and Liverpool. Our informants included investors, real estate directors, brokers, property developers; regional government strategists and town planners. We also analysed marketing and housing related materials published in both Chinese and English. Here a grounded and linguistic insider position enabled us to learn much about these flows and understand more about Hongkongers’ social status, anxieties and investment strategies.
We suggest that there have been three broad waves of investment from Hong Kong to UK’s housing market. The first wave, which we call the ‘pre-handover migration wave’ or the buy-to-live trend, began in the late 1980s when Hong Kong’s sovereignty was about to be transferred back to mainland China in 1997. Based on the uncertain politics of Hong Kong, citizens relocated to countries such as Australia, Canada, New Zealand and the US. However, the 1989 student protest in Tiananmen Square in particular triggered emigration to the UK with around 50,000 families granted British citizenship under the British Nationality (Hong Kong) Act of 1990. During this period some Hong Kong citizens bought properties, mostly in London, with the intention of relocating. However, the reality was that many remained in Hong Kong, with some parents buying properties for housing their children while at university.
The second wave of investment which we identify as a process of buying to ‘fry’. We choose this term, based on a Hong Kong colloquialism, to describe the way in which investors speculated off-plan properties to generate a quick profit (the frying) and the impact this made on housing pressures in London alongside with those generated by the global super-rich. These processes began in the early 2000s where wealthy middle class Hongkongers sought alternative investment vehicles at the time when local banks offer almost zero interest rates on money deposited.
The ‘post-London investment wave’, which we introduce as the third investment pattern, started when property prices rose in London after the credit crunch in 2009. Investors explored buy-to-let options in northern cities including Liverpool, Manchester and Birmingham with a significant rental yield of up to 8%.
From our work we suggest that there are two important reasons as to why Hongkongers continue to invest in global real estate. First, experienced through waves of financial crises and that the state pension in Hong Kong being insignificant, they understand financial insecurity is generated via transnational instabilities and is, to some extent, unavoidable. Thinking like the super-rich, buying properties is a secure way to safeguard the possible depreciation of their cash, outperform close to zero bank interest rates on deposits and generate a regular rental income. More surprisingly perhaps, some investors are not as wealthy as the popular media suggest, they save hard and access loans to invest for long-term growth, sometimes with friends and family members in ways that resemble Confucian capitalism which intergrades the notions of familial and intergenerational loyalty, thrift and an ethic of hard work.
The second key factor relates to the geopolitical uncertainties surrounding Hong Kong itself and which has been impacted by mainland China. Here we see renewed debates on issues of emigration rights and the potential role of off-shore residential properties which may offer buyers a sense of political stability should the political context deteriorate.
Perhaps it is also important to acknowledge here that the current housing crisis in London is deepened by the UK government’s inability to implement a strategy to build more affordable housing and the avoidance of creating policies to deter non-UK citizens from buying properties. However, not all investments lead to financial rewards as around 1,000 investors from Hong Kong, mainland China, Taiwan and Malaysia who have invested with a total of HK$500 million (US$64 million, £52 million) have seen their properties fail to complete or remain unbuilt.
Finally, despite Britain’s plans to leave the European Union that has appeared to reduce investment from other countries, capital from Hong Kong and mainland China continues to flow into London’s real estate market. Hong Kong investors alone have around £4.5bn of live equity which is aimed at London. These indicators suggest that long-term flows of capital between Hong Kong and London are unlikely to dissipate anytime soon despite the questions that these and related forms of investment raise about what is good for the wider population of the destination of such investment.