01/03/2014 Talking Business with Linda Yueh

attacked passengers. `` at a railway station. I will be back at the top

of the hour. Now it is time for Talking Business. London properties.

English football clubs. Foreign buyers. They are flocking in despite

an economy recovering from a banking crash. How attractive is buying in

London? I am Linda Yueh and we are Talking Business.

A warm welcome to the programme. Despite the doom and gloom, you

sometimes hear about the British economy, foreign buyers are coming

in for at least a couple of assets ` housing and football clubs. In

London, prices have risen rapidly and doubled the UK average at about

?400,000, which has raised concerns. These are some of the most expensive

properties in the most desirable parts of London. The vast majority

of the owners are people for whom these are second or third homes. The

city is home to many different nationalities. At the influx of

these cashrich buyers is having a huge impact. `` but. Other prices in

England are at the peak of 2007 but in London they have doubled since

2005. Figures show they are still rising by around 10% from a year

ago. According to a recent survey, almost half of prime London

properties worth sold for in excess of the asking price. And they sold

within two weeks of being put up for sale. So, is it the night life, the

restaurants of the good schools that is tempting buyers? And will that

lead to a dangerous property bubble? Joining me today to discuss

why foreign buyers are coming in and if there's a bubble in London

housing market are Henry Pryor, housing expert who runs his own

blog, The Property Expert blog. Merryn Somerset Webb is editor of

Mana week to stop and Niccolo Barattieri, and develop the ``

develop a larger parties in London. Merryn, is there a bubble in the

London market? There is in all normal metrics, but you have to put

it in the context of what is happening globally. There are low

interest rates and quantitative easing in many countries and a lot

of capital flight out of areas that are seeing difficulties. Is there a

bubble in a normal metrics, looking at incomes? Yes, there is. Does it

mean that this huge level of price rises will end soon? Probably not.

Henry, do you agree? I think I do. The enquiries I am getting our

people viewing London as a second currency. They want to see somewhere

safe for them, as they would see it, to put their money. And the mistakes

some are making is to mistake and investment for what is actually a

gamble for some speculation in the London market is rife. People are

forgetting about the idea of a yield for their investment and they are

buying solely for capital value, which I think is dangerous. Nicolo,

is there a bubble? Do you see that? I don't have a crystal ball so I

don't know what the future holds. We are to concentrating on the

perspective of the pound perspective. If you adjust for

currency, the bubble looks different. If you look at it from

some Asian currencies, the market is down since 2007. It is up in pound

terms but down 15% in Singapore dollars. Like everything, it depends

how you look at it. I don't know what the future holds. There are so

many different macroeconomic points that can change. I don't think

necessarily there is. Merryn, what about that? A lot of the buyers are

foreign and they are looking at the value of the pound against what they

will get in other places. In that sense, if you think the market is

bubbling, would this mean that prices will continue to go up? Or is

there a risk of collapse? There is obviously a risk of collapse. It

depends on what happens globally. This is a macroeconomic issue. It is

about global interest rates. It is about flight to safety from where

capital is not safe. We know there is huge capital flight from China at

the moment. You just have to look at the money coming out of Macau.

Enquirer is fun places like Argentina and Brazil have gone up

massively in the last few weeks, as we saw the beginning of crisis in

the emerging markets. House prices in London are not about what

Londoners can pay. If it was, this would be a massive bubble that would

collapse any second. It is still a massive bubble, but it is driven by

things outside the spirit of the average Londoner. What happens next

is impossible to tell. Henry, what is going to happen next? Like any

market, housing in London is based on confidence. There is no doubt

that estate agents in London, who by and large represent sellers, I can

be confident about the future of house prices in the capital. If you

look at property as an investment, whether UK resident or an overseas

buyer who is facing potentially the prospect of Capital Gains Tax, then

London property, with yields below 2%, is slightly confusing to many

people. If you are going to invest in London, the traditional prime

property areas remain the place where most people, sensibly, will

look to purchase. If you are convinced from 6000 miles away that

a ?1 million flat in Enfield or new is that an investment, I think you

are the kind of person who thinks Prosecco is champagne. That is a

dangerous road to go down. Niccolo, what kind of buyers are you seeing?

Is this reflecting what you are getting from foreign buyers? Or are

they viewing London as a place to invest or to buy for a residence?

You can distort this this ticks as you want. In a cosmopolitan city

like London, to talk of foreign buyers is a bit strange. If you look

at 38% of the people who live in London are considered foreign

nationals, to say that 70% of new homes are bought by foreigners is

actually misleading. If you look at how many of those are resident, the

actual foreign percentage goes down to 28%. The distinction is not

correct. It is foreigners but as far as we are concerned it is foreigners

that live in London. They want to be part of a deb `` development. There

is an important point to make. If you look at the kind of bucks

Northacre produces, they and the Candy brothers are producing a

product that appeal to a different sort of market, who value poverty

and different way. They take a global perspective. They are looking

at buying an asset in the same way they might buy an expensive motorcar

or jewellery. That is important to understand and there are developers

and builders and estate agents who have understood that and are

presenting a product to that market in a way that makes sense to them.

It is the periphery that I think we would all agree is where buyers need

to be more cautious. There are a lot of people around the world where an

estate agent is a broker. Not in London. They are selling on behalf

of the seller. This is the key point, that there are a lot of

foreign buyers, to London for whom making a capital loss is not

necessarily a problem. Protecting a certain amount of that capital is

the priority. And ordinary Londoner buying a house is go to be in

trouble if they use 30% of their investment. Somebody buying from

abroad, buying into a safe haven, might feel fine about using even 50%

over a 10`year period, depending on currency moves. You have got these

different buyers. That isn't ordinary Londoner's problem. I want

to ask you a bit about what attracts buyers in London. Is it the schools,

the transport... Bear with me! Is it the nightlife of the restaurants?

What appeals about the capital? All of the above. Including the

transport? ! The people buying our developments, the transport is less

of an issue. They come here for everything that London has to offer.

One key point is the schooling system. The schooling system is a

very interesting driving factor for people to want to own a home here.

In fact, what we track as well is, for example, foreign enquirer is

into the top schools outside London. Those are continuing to rise. There

are more enquiries. Going back to your question of there is bubble or

not, that underpins London real estate. They also want to be part of

the British fabric. Owning a home here is also an aspirational place

to own. What are you finding, Henry, in terms of your clients? Last day,

just over 62% of my clients were from South America. They take a very

mature and reflective approach to London as a centre for them to

exchange their currency. It makes sense for them. Rather than the

attractions, which I am sure we all agree on, that London as a place to

come to buy property, whether to invest or live, the things that are

threats for these people, the sort of things they are looking out for,

after things in the UK we are not paying so much attention to. Our

political system works very well, a stable system works well. In`built

into that, politicians in the UK are like wind socks. They will change

what they are trying to do with the sentiment. If there is a view that

foreign nationals are not paying their share of tax, for example, we

know that next spring they are introducing Capital Gains Tax for

foreign nationals. There is talk as well of the three main parties in

the UK undertaking to introduce a mansion tax. These old things that

will make those who buy property in the UK perhaps reflect a little

further about what they are doing and the way they are going to do it.

Are your clients reflecting on that? Who are your buyers? First you

have to look at the UK being one of the cheapest places in the world to

own a property. If you look at the taxes in the US on real estate, you

see that it hasn't deterred buyers. If you have a top end product, I

think people will come. What specifically about the product are

you finding most appeals? First of all you have got to create a nation

where people want to live. People want and manatees, they want the car

park, they were the facilities, the concierge. They want a place where

they can display through the R. `` who they are. People want white

walls. They want to display their art. That is what they are about. It

is not about property, even if it is worth 30 million. The painting on

the wall could be worth 50. That goes again to looking at, is in the

bubble or not? Is it a bubble if you're house is worth 30 and your

art is worth 50? Football clubs are another magnet for rich overseas

investors, ranging from Russian oligarchs to Middle East and shakes.

But is it a good investment? They call it the Theatre of dreams, home

to the world`famous Manchester United club. It is owned by an

American family who bought it in 2005 for over $1 billion. Across

town, Manchester City has seen the deep pockets of its owner from Abu

Dhabi. He is spent to web spent over $1.5 billion. Meanwhile, Chelsea

football club has its own famous owner, Roman Abramovich. He is said

to have spent $3 billion on his club since buying it a decade ago. It

didn't return a profit in 2012 of over $2 million, but since then, it

is a case of more going out than coming in. Football is an expensive

business. The transfer window for buying and selling players has just

set a record. Premier League clubs spent $1.1 billion. So while people

might joke it is the only business where you invest billions to make

millions, what is it that attracts the rich to buy English football

clubs? Joining me as Simon Chadwick, profession of sports business and

branding, Karen Stone, Harry Phillips, a senior adviser who used

to advise football clubs on all aspects of finance. Welcome to all

of you. Harry, you were in the business. Why do foreigners by

football clubs? First of all, wealthy owners buy it as an ego trip

because they can afford it and they want to be in the business.

Secondly, looking at the Manchester City example, it is more of a state

investment, they buy a club they are then going to the other state

businesses into, in terms of using naming rights. It almost becomes

like a country orientated destination. The third type is more

American, they have sports interests in the US and they want to try to

bring some of those business ideas into the English game and run it

more as a business. Simon, it is not exactly a money making business, so

why is there such interest? I'm sure many would question whether these

entities are businesses anyway. They were set up as leisure clubs in the

19th century and I think what they've done is morphed into

something completely different to centuries later. So there is a

juxtaposition in clubs often of organisations that operate in very

complex, dynamic commercial environments, but still operate to

principles founded back in the 19th century. I think that is an

interesting issue. I agree with Harry, there are three main reasons.

Financially, if we look at sports entrepreneurs like the glazier

family, they are keen to generate a return for their investment. So at

Manchester United we are seeing them actively pursuing a revenue

generating strategy, by selling rights around the world. At

Manchester City, we see a similar thing at clubs like Malaga in Spain,

I think there is a certain amount of soft power behind this as well.

Definitely a geopolitical agenda underpinning this. What I mean by

that is, if we think about the Middle East and oligarchs, they see

football as a way of influencing agendas on broader level. You go to

a football game, it is exciting, interesting, people see you, you get

the chance to socialise, to network. Football is allow you to do

that. Carol, is that why they buy these clubs? Is it about networking

and society and things that don't really have to do with what is going

on on the pitch? I think that is true, but don't underestimate the

vanity of people buying clubs. It is not because of the money. Now that

Alex Ferguson has gone Manchester United are not doing as well as they

were when the family bought it. I think people buy it partly because

they want the fame, of course, and also we were talking about buying

houses. They own a great asset. Roman Abramovich bought Chelsea

football club, that is a great asset. He feels more British with

that. And you like to see your name in the newspaper. It is hard work to

become a network and to gather people about you. It is easier if

you have something like a football club! Abramowitz... Some of these

guys, they are business people. It is business that does not really

warrant the money going on `` going in. That is correct, it is very

difficult to make money in football. Why do we see people buying into

British football? Simon and I were discussing this earlier. I think it

is because in the English Premier League, you can buy the clubs. In

Germany and other countries there are restrictions on purchasing

clubs, said the first point is just the access ability to the clubs. ``

access ability. Clearly the revenues in the game are rising, primarily

driven off the back of television deals. All that money is flowing

through to the players in essence. Money comes out the bottom to the

players and therefore it is very difficult to build a business case

to make a profitable business until you get wages and costs under

control. Is that going to happen? Will be a change so football can be

a business case? I think we are in the midst of a change right now,

which I think is why we are talking about it now. The global TV market

is obviously well developed and mature and sophisticated. There are

tremendous revenue streams to be drawn from media markets worldwide.

Merchandise sales can be developed in places like China, South America,

parts of Asia. So now football clubs are starting to see a way forward in

terms of certainly not being able to control their costs, I think they

are impossible to control because of the nature of the labour market and

the salaries, but certainly in terms of developing revenue streams, there

is tremendous potential there. I think clubs see that as a way

forward for developing their business and commercial activities.

Carroll, looking at these clubs, it seems as if may be some people buy a

club just to be part of society. They buy a club so they can invite

people to the boxers, to enjoy the hospitality. How important is that,

especially for the global elite who are looking for, I do know, a

showcase of some sort? You are spot on. You can buy a house, but not

many people come. If you actually want to be known, it is very

important, when you are in the ink rout, you have to stay in the in

crowd. You just think, what do we all want to do to network? We want

to meet the politicians, the media, the business people. How do you get

them together? I always say, if you want to network, you have to have

somewhere to invite somebody. I would say, why don't you come for

lunch or dinner or to my box? When you come I can bring a couple of

other people who are also businessmen. That is how business is

done. I think you are smart if you buy a club. The girls, money and

fame is extra. I think it can be good business. It probably is a good

business from that social perspective. Financially, until

costs are brought under control, it is very difficult. We're talking at

the very top level. So defined among the top 50 or 60 players in the

world, they demand such fees that if you want your club to be successful

at that level, you have to play what is the labour rate to get these

players. OK, final round. Simon, would you buy a football club? No. I

most certainly would. Maybe. It depends! If I was well be enough to

be able to buy one, I definitely would, because I love the business.

In terms of an economic model, there is a long way to go. Thank you to

all of my guests. There are a number of reasons, not always related to

profit, that cause people to buy football clubs.

After all, David Beckham is the owner of the latest one in America.

There is also a host of reasons why foreigners buy homes in London,

including its being a good investment due to low occupancy

costs. Buying British still seems to be in vogue. That is all from me

this week. Check out Twitter and tune in next week.