Despite the global pandemic, recent figures reveal that Chinese investment in luxury prime central London residential property has soared, accounting for 15% of international buyer home sales above £1 million and 20% of deals above £10 million.
Meanwhile, in 2019, data from the Office for National Statistics highlighted that Hong Kong and mainland Chinese buyers invested £7.69 billion in London property, including over £750 million invested in residential homes in the City of Westminster and the Royal Borough of Kensington and Chelsea.
According to the Hurun Chinese Luxury Consumer Survey 2020, Chinese HNWIs are currently putting 12.5% of their wealth into overseas assets, with London ranked as the most popular investment destination.
However, with the UK having now officially left the EU, will this trend change? Do Chinese HNWIs and investors still regard the UK property market as a safe haven? What are the key factors that drive their purchasing decisions and where are they interested in buying or developing in the next 12 months?
Well-known China/UK PR agency 11K Consulting and The Luxury Property Forum put together a Thought Leadership Article to find out, in which 13 respected experts in Hong Kong, China and the UK, who are either property investors themselves or advise Chinese clients on their property investment strategies in the UK, were asked to offer their unique first-hand observations and insights into these topics.
Here, we take a closer look at what was discovered.
For Chinese property buyers, what are the unique selling points and concerns of the UK property market after Brexit?
Phil Mason, international sales director at Battersea Power Station, the £9 billion project at the heart of one of central London (and Europe’s) largest regeneration areas, says that the UK property market is expected to remain a safe and stable market despite Brexit, and a key driver for Chinese and global buyers.
He argues London’s position as a global financial powerhouse, an international go-to for education and a safe haven for Chinese investors remains ‘as solid as ever’.
“There was a little hesitancy in the immediate aftermath of the UK’s exit from the EU, with Chinese buyers naturally following a ‘wait-and-see approach’ to see how the market would react. The concerns were quickly put to rest,” Mason said.
He added that the capital’s strong fundamentals, together with the more general appeal of the UK as a cultural melting pot and of London as a great city in which to live, means that international interest in property in London remains strong. He also pointed out that the weak pound presents a timely opportunity for Chinese and other international buyers to purchase property in the UK right now at better rates.
Kerri Sibson, sales and marketing director at Knight Dragon, which is investing £8.4 billion into Greenwich Peninsula, a blank canvas twice the size of Soho, said that the UK has long been seen as a stable and safe market – a key driver for global buyers – and this hasn’t changed.
“Our education system is held in high regard around the world, and is a major deciding factor among Chinese buyers who have children studying in London or planning to do so,” Sibson insisted. “Many are looking to invest in a base whilst their children are studying, but one which will also be a smart long-term investment too.”
Dr. Ian Zhu, head of China outbound investment at Grant Thornton UK LLP, believes the UK remains a top hotspot for Chinese property buyers in spite of Brexit because of its ‘high rental yield compared with the large cities in China, as well as relatively high liquidity due to the fact that London has been voted as the leading city in the world to enjoy lifestyle’.
“The pandemic is a bigger concern than Brexit, because there is lower demand of student accommodation since lots of students are doing online distance learning at home counties,” Dr Zhu commented.
Jo Eccles, managing director at ECCORD London, agreed and said that there is currently a lot of noise about Brexit and Covid-19, which is making Chinese buyers cautious about the timing of their purchase.
“There is strong appetite, but some buyers are holding off for the time being while they observe the situation,” she said.
But she insists that the UK remains very attractive to Chinese buyers in the long-term as owning a prime London property is very appealing as a wealth status symbol.
“Over the years, we have acquired some spectacular properties for Chinese clients who are very area-conscious, eager to own properties in the most desirable addresses,” Eccles added.
“They are less focused on the internal property itself, and more on the location and building. In many cases, they don’t use the property. For example, we manage a large house in Regent’s Park for a China-based client who only viewed it once and has never visited the property since.”
Rafael Steinmetz Leffa, executive director at GWM London Limited, an alternative investment fund manager, claimed his Chinese clients still see a UK property investment as diversification away from their home country.
“Interestingly, London property still remains a gold standard of investment and many still view a property in London as a trophy asset. It remains as a legacy for future generations, especially when taking into account the safety of the investment from a ‘rule of law’ point of view,” he stated.
Kingston Lai, founder and chief executive of the Hong Kong-based Asia Bankers Club, argued that Chinese and Hong Kong investors care more about the future and success of the UK in the long-term.
“In the short term, the UK is inevitably going to see a slowdown in the economy, with Brexit and especially with the Covid pandemic,” he said. “But in the medium term, I believe investors will become bullish again. Brexit is and can be a good thing.”
He added: “The UK will likely suffer in the short-term, but after 3-5 years, it can be a good thing if the UK can restructure the country in a good way. Also, property is very unique. It is not very correlated to Brexit. The London real estate market is very mature, and the demand always stays.”
Jacob Sullivan, sales & marketing director at Regal London, one of London’s leading residential-led mixed-used developers, believes that the recently favourable exchange rate and firm direction of travel seen since the UK’s full withdrawal from the EU have added further clarity to what is already a clear and transparent process.
Kees van der Sande, director and trustee at Formation Architects, an award-winning architectural practice in London, noted that post-Brexit, there is now a much more level playing field for those wishing to come to the UK from outside the EU.
“In terms of London property, there are a number of changes happening in the key boroughs of Westminster, Kensington and Chelsea and Camden which will limit supply of some prime residential property in the long-term. As such, trophy freehold assets which can be purchased now will maintain their long-term value both as a rental or purchase investment,” van der Sande explained.
In terms of specific locations and cities in the UK, where are Chinese buyers interested in buying or developing in the next 12 months?
The research found that London is set to remain the number one destination of choice, largely due to its unrivalled position as the UK’s economic, political and cultural centre, while regional cities such as Liverpool, Manchester, Birmingham and Sheffield – all with long-standing Chinese communities – are also getting more popular among Chinese buyers because of the potential higher yields they offer.
Phil Mason said some of the UK’s regional cities are gaining traction with Chinese buyers, especially buyers interested in bulk deals at a lower price point. For the HNWI buyer, though, he argues London remains out in front.
“In terms of locations within the city, Chinese buyers tend to favour large-scale developments that offer an all-in-one collection of vital needs. The ideal scenario, from our enquiries, is to be only walking distance to high-end retail outlets and the best restaurants, as this closely resembles the properties back home,” he said.
Kees van der Sande believes that Westminster, Kensington, Chelsea and Hampstead still offer the best property in terms of trophy assets.
“Edinburgh and Bath are also seeing significant growth on the back of prime heritage locations (and TV tie-ins) and limited supply for those seeking an out of London asset or university city,” van der Sande said. “The country house market is also buoyant for those seeking more isolation or even converting property to rent out to others like a high-value Airbnb.”
Changyi Liu, senior residential account manager at estate agency Foxtons, said Chinese buyers are buying across the whole of the capital, with the most popular areas right now being Central London, Canary Wharf, Nine Elms, Lewisham, Deptford and Woolwich.
“The property prices at these locations have been growing in the past few years until lockdown started, in the next 12 months we will continue seeing growth rate slow down. Chinese buyers will then start looking for other locations that have potential growth, such as Croydon, West Ham, Hounslow,” Liu said.
Patrick Tsang, chairman at Tsangs Group, claims that Chinese HNWIs historically prefer to purchase near universities and are likely to be interested in new-builds. He adds that London will always be attractive to foreign buyers.
“Other major cities such as Manchester, Birmingham, and Liverpool are consistently growing by population. Liverpool is one of the highest-performing buy-to-let hotspots in the UK – the postcodes L7 and L1 are regularly achieving yields of 8.2% and 8%, with rises of 15% and 12% in the last five years.”
Kerri Sibson says that, traditionally, there were only a handful of central London postcodes that wealthy Chinese buyers would consider.
“Now, more and more are expanding their search and drawn to the benefits of new and emerging locations, considering Zone 2 regeneration areas like Greenwich Peninsula, where there is potential for stronger yields,” she said.
“These kinds of well-connected neighbourhoods, which have a multitude of amenities on the doorstep, also deliver in that the buyer can happily live there, but also be reassured that should they ever wish to move, there will be high demand from rental tenants, too.”
Jacob Sullivan emphasises that connectivity is key for Chinese HNWIs. “London is still at the forefront of many Chinese buyers’ minds. The key global city continues to attract global business such as Apple, Google and Facebook, and is investing millions in infrastructure in what is already an extremely well-connected city, with developments such as Crossrail, the largest construction project in Europe,” he said.
Charlie Willis, chief executive at The London Broker, a collective of leading independent property brokers, said: “If you are a Chinese investor looking to develop, you need to be quite flexible where you look, as the market remains very competitive. You need to be well-advised in what you are buying and you need to be quick.”
He added: “Besides London, Manchester as well as Glasgow and Edinburgh, which are close to good universities, are getting hot among the Chinese buyers.”
Rafael Steinmetz Leffa commented: “I would say that Central London is still the first place that comes to mind, but I am increasingly hearing of investors looking at cities which they perceive as undervalued and expect to develop in due course. Leicester, Manchester, Birmingham and Sheffield are all cities with established and growing Chinese communities.”
Dr Zhu believes London is always the safest place to invest because of the liquidity in property sales and the rental market.
“Within London, I think White City and Ealing will have stronger potential because of the new Elizabeth Line,” he said. “There is increasing interest in Manchester, Liverpool and Glasgow, where the rental yield is higher and there are famous universities to attract international students.”
He also points to Cambridge, where more tech startups will be set up, attracting young professionals to relocate there. “But the pandemic is slowing everything down,” he added.
Steven Landes, managing director at Hawksford, echoed many of the above thoughts. “Regional cities such as Liverpool, Manchester, Newcastle, and Sheffield are getting more popular among Chinese buyers because the yields are much higher compared to yields in London.”
In conclusion, the thought leadership article said that – while Brexit and Covid-19 have inevitably caused some short-term disruptions on the UK’s economy and property market – Chinese HNWIs and investors remain ‘cautiously confident and optimistic’ about the safe and long-term investment opportunities in the UK and London property market.
You can read the full report here. Our thanks to Sally Maier-Yip, founder and managing director of 11K Consulting, for providing us with it.
This post has originally been featured in Property Investor Today.