London prepared for Chinese real estate investors

Foundation stone laying ceremony of Greenland London Ram Quarter. Photos provided to China Daily

Ping An Insurance Group, based in the southern city of Shenzhen, bought the landmark City of London headquarters of the Lloyd's insurance market for 261 million pounds last year, becoming the first Chinese insurer to buy a property in the UK. However, it has been reported that Lloyd's is considering a move out of the building. According to sources, the company's management has grown tired of the high cost of the site and could activate an option in their lease to leave in 2021.

Lloyd's pays nearly 17 million pounds a year in rent, but service charges are twice as high as buildings elsewhere in the city's financial district.

Losing a tenant means a yield of zero percent for the building's owner. And if they have a loan to repay, the situation can be even worse.

Regulations in Europe relating to the renovation, restoration and repurposing of buildings can also be troublesome for foreign investors unfamiliar with the rules.

Shanghai developer Zhongrong Property Group Co Ltd unveiled a 500-million-pound proposal in 2013 to build a replica of London's famed Crystal Palace, which was destroyed by fire in 1936. The project was abandoned in February after Bromley Council, the local authority, issued a statement saying a 16-month exclusivity agreement had lapsed and would not be renewed, as there was "no realistic prospect" of reaching a deal.

Industry insiders say a comprehensive understanding of the local market, regulations and business culture is crucial for Chinese newcomers investing in real estate abroad.

"The market in London is complicated, even though it is transparent," warns Nick Braybrook, head of City investment at Knight Frank. "Certainly in terms of planning, it is important to get the right level of advice before buying."

Chinese buyers should follow the example set by European investors, experts say: Gain more experience in negotiating with local institutions, make use of local advice, and ensure any investment is conducted in a transparent way.

"Take your time to research the market properly, get good advice, and make sure you have a proper professional team advising you," suggests Zhao at Savills. "Follow local market tactics and factors. Get your tax structuring right. Make sure you have a very good team of property advisors and lawyers around you with local experience, especially in planning and delivery."

Despite the risks in property investment, most analysts agree that Chinese money will continue to flow into European markets at a significant rate.

"We have already seen the top Chinese firms make a statement in London," Zhao adds, "and we expect a lot more to follow."

Daniel Assab and Fu Yi contributed to this story.

zhangchunyan@chinadaily.com.cn