Chinese Invest Billions in London Property Market

Foreign investment in the London property market is booming as a new breed of Chinese investors plunge billions into the capital’s prime retail. 

Chinese investors significantly increasing their hold on London property market

Foreign investment in the London property market is booming. It is estimated that last year foreign buyers accounted for 70% of the total investment in the city as they spent £14.6 billion ($22 billion) buying up prime retail assets on the capital’s streets.

But 2014 was also the year of a new breed of buyer as we saw the rise of the Chinese investor. Last year, buyers from the country spent £2.2 billion ($3.32 billion) on London property and became the second biggest investors in the city after only the Americans.

Property developers and insurance firms buy up prime London assets

Replacing the high net worth individuals who traditionally fuel London’s property market, this surge in Chinese investment is being led predominantly by developers and insurance companies – many of which are state-owned. Offices, retail and industrial developments, hotels, and large-scale housing along the River Thames, in the financial district of Canary Wharf and the surrounding East London and Thames docklands, and London’s suburbs are the biggest assets for this breed of buyer.

Some of the biggest investments so far include Green Holding Group’s purchase of the Ram Brewery for around £600 million, the £700 million Dalian Wanda investment to build a five-star hotel along the River Thames, and China Life’s (China’s largest insurer) purchase of a tower in Canary Wharf for £795 million.

Chinese Advanced Business Park Holdings also invested in the Royal Albert Dock, the ZhongRong Group committed to the regeneration of the Crystal Palace Park, and Ping An Insurance bought both the landmark Lloyds building for £261 million and Tower Place for £327 million.

Many of London’s trophy buildings are now in Chinese hands.

London is an attractive investment destination

This surge in investment is widely credited to China’s increased financial freedom which has been most obviously in action since 2012. The liberalisation of China’s currency, the Renminbi (RMB), has also played a role: based on its current strength, buying a property in London is now 8% cheaper than it was six years ago.

London’s property popularity is also linked to the introduction of legislation in Hong Kong in 2012 taxing foreign buyers 15% on property purchases, which hit the largely mainland Chinese investors hard. Improved trade relations between the UK and China must also be having an effect. As is the increasing number of Chinese children being educated in the UK’s top schools. Indeed, 22% of high net worth individuals in China are reportedly planning on sending their children to the UK to study, and currently 37% of independent (private) primary and secondary school children in the UK have parents domiciled in China or Hong Kong.

What does it mean for the UK?

Chinese investment on this unprecedented scale will certainly have a dramatic effect on the UK. Billions of pounds of capital offer a new source of cash flow. And large development projects will certainly create tens of thousands of jobs. London’s deputy mayor Edward Lister comments: “For us, Chinese investment is important”; and in November 2014 the London mayor, Boris Johnson, led a trade delegation to Malaysia, Singapore, and Indonesia to promote investment in housing schemes in the capital.

But placing the control of tens of thousands of new homes, retail and industrial developments, offices, and iconic London buildings in the hands of foreign investors won’t just bring good news for the UK.

More than a quarter of the new homes in the capital are being built by foreign investors and there are warnings that too many of these are being built as luxury second-homes – or “safety deposit boxes” – for the investors, as opposed to creating actual solutions for London’s very real housing needs. The capital will not be sustainable unless people can afford to live in it.

However, Richard Blakeway, London’s deputy mayor for housing, land, and property, is optimistic: “With London facing unprecedented growth, foreign direct investment, together with traditional institutional finance, is helping to unlock developments that have stalled for many years, allowing thousands more homes to be built for Londoners far sooner than would otherwise be possible.”

Whoever is proved right, what is certain is that a slice of London’s iconic property market won’t hurt the Chinese.

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