Chinese property investors lured to UK by weaker pound

Night view of London. [Photo/provided to chinadaily.com.cn]

Chinese investors have marched into the UK's property space in the past few months after uncertainties resulting from Britain's vote to leave the European Union in June pushed sterling to a low exchange rate.

Although so far no official sales statistics post-referendum are available, estate agents across the country are raving about Chinese interests and deals from anecdotal evidence, which is supported by a few huge deals.

In London, China Minsheng Investment Corp bought the French bank Societe Generale's London headquarters office for 84.5 million pounds ($112.3 million) in September.

Outside the capital, Sichuan Guodong Construction Co announced in July it would invest more than 1 billion pounds in Sheffield for property development, and Country Garden announced up to 2 billion pounds ($2.65 billion) of investment in Birmingham in September.

Many of these deals were already in negotiation before the referendum vote in June, but uncertainties before the vote meant Chinese investors had held these deals in the pipeline. A big depreciation of the pound after the vote gave Chinese private and corporate investors quick opportunities for action.

The pound was down against all major world currencies on June 24, and at the end of the London trading day was down by nearly 9 percent against the dollar, marking one of the biggest one-day declines on record.

"The significant decline of the pound more than compensate for the short term risks associated with Brexit negotiations,” said Rasheed Hassan, head of cross-border investment at Savills, a UK estate agent.

Over 80 percent of deals transacted through Savills since the vote have been for overseas investors, and Chinese investors represent a sizable portion.

Eric Zhao, Chinese Capital Markets Specialist at Savills, added that Chinese investors are well known for taking a "long term view” in the property market.

This surge in demand from Chinese coincided with reduced competition for properties from domestic and other international buyers, who are more likely to be holding back their investments as they are more concerned about the UK economy's current uncertainty and may have more difficulty obtaining funding for their purchases.

For example, a few days after the vote, on June 30 Singapore's United Overseas Bank suspended loan applications for London residential properties, fearing the UK's long term economic growth. By comparison, Chinese individual investors have an advantage, as they are more likely to be cash buyers.

"Chinese buyers are brave and perceptive, they are willing to take risks and will be rewarded,” said Naomi Heaton, chief executive of Central London Portfolio, an asset management firm specializing in prime locations in London's property market, who compares the current UK economic uncertainties to those after the 2008 economic crisis.

"Back then, many people were scared and wanted to wait and see, but the brave investors took first mover advantage when property prices fell and benefited greatly from it,” she said, explaining that external uncertainties create good buying opportunities for central London's limited supply of residential units, which have strong fundamentals.

London Central Apartment 3, the latest fund that Heaton's team closed in July, carried 10 percent investment from Chinese interests, which is a big increase from previous funds. The fund almost reached its target of 100 million pounds, and Heaton said the fund received five times as many enquiries in the four week period following the vote compared the same period before.

Heaton's comments are backed by statistics from Juwai, a real-estate website based in Shanghai that allows Chinese buyers to browse residential and commercial properties around the world.

Juwai said the number of Chinese enquiries about the British residential and commercial property market has been 30-40 percent higher than average in each week from June 20 to July 11.

Such growth is set against the wider picture of a surge in Chinese purchases in the UK's property market in recent years, partly due to the lack of good investment opportunities as China's domestic property market starts to show signs of a bubble, and investors' confidence in the Chinese stock market waned after a stock market crisis last year.

Against this background Chinese investors started to look for more stable investments, and the UK's property market became a naturally attractive choice due to its political stability, economic resilience, security of property title for the investor, and relatively transparent market.

This demand fueled a rapid growth of Chinese-speaking property agents, real estate lawyers and other supporting service-providers in the UK, which in turn made investing much more convenient and attractive for Chinese investors.

Statistics from agents Jones Lang LaSalle show that Chinese investors were the second-largest investor group in UK commercial property between the start of 2014 and the first quarter of 2016, with a total transaction value of $5.8 billion, just behind the United States.

The London-based think-tank, the Centre for Economics and Business Research, estimates Chinese investment in the UK property market will grow to 30.2 billion pounds ($40 billion; 36 billion euros) by 2025.

Post-Brexit investment enthusiam

Chinese property developers and investors are investing into the UK's regional cities at unprecedented rates following the UK's vote in June to leave the European Union.

In July Sichuan Guodong Construction Co announced more than 1 billion pounds investment in Sheffield for property development, and Country Garden announced up to 2 billion pounds ($2.65 billion) of investment in Birmingham in September.

Both deals broke the record for the largest Chinese investment in the UK outside of London at the time of announcement, highlighting both the slightly faster growth of UK regional property markets in the wake of the June 24 referendum vote and regional cities' governments' increasing efforts to attract foreign investment and demonstrate they are open for business.

It also fits into a longer term trend of Chinese companies becoming more mature, familiar and ready to embark on property investment opportunities outside the UK's biggest and most obvious city, London, as they often visit the UK's regional cities on holiday or go to see their children who study in these cities.

In addition, the less density of regional cities' property markets also translate into more need for new builds, which are opportunities Chinese property developers are keen to seize, and then use their networks in China to sell these new units, often off-plan, to Chinese buyers.

For example, China's Beijing Construction Engineering Group is currently investing into and participating in the construction process of two key projects in Manchester. The first, known as Middlewood Locks, is the design and construction of a mixed development including a 2000-unit apartment, hotel and retail complex, and the second is the design and construction of two tower blocks for a mixture of 5-star international hotel, "Grade A” office, luxury residential apartments and retail use, known as St. Michael's.

Different from London property market, where competition is far more fierce, the UK's regional cities which need new property development often make more of an effort to reach out to Chinese investors, and attract them with relationship building and a friendly attitude.

For example, the Sheffield deal was inked when a Sheffield City Council delegation visited Sichuan Guodong Construction Group.

"We have gone out and made this happen, not sat back and waited for others to come to us. It demonstrates our ambition for the city,” said Leigh Bramall, deputy leader of Sheffield City Council.

Such a proactive attitude is undoubtedly affected by post-referendum uncertainties. "At a time of unprecedented uncertainty and turmoil on the national political scene, we have taken the bull by the horns,” said Bramall.

Encouragingly, statistics show stronger property price growth post referendum in cities such as Manchester and Birmingham, at a time when the growth in London property market prices have slowed, said Michael Ball, a professor of urban and property economics at Henley Business School, University of Reading.

"This is because previous to the vote, London property prices grew much more, so now this is slowing. Regional economic growth is impacting on property prices' growth,” Ball said.

To contact the reporter: cecily.liu@mail.chinadailyuk.com