Research reveals how to sell to Chinese buyers plus foreign investor ‘club’ deals

2 April 2021 | Investment

Di Lieto says the major motivations to purchase in the UK are stronger than ever, and growing. While the stamp duty holiday is set to disappear completely by October this year, this has only served to bring forward the buying plans for some.

According to Di Lieto, Covid and the current inability ability to travel don’t present a barrier to purchase. “Many buyers are already expats living in the UK, and buying off-plan or without visiting a property is increasingly common,” she said. “What does get in the way of sales is sellers not understanding the preferred purchasing journey of Chinese buyers. It is very different from that of other nationals.”

A qualitative survey of Chinese owners of British property who live in China and the UK has highlighted the buying experience they took, and establishes how and at what stage sellers should engage with sales prospects, Di Lieto says.    

“The first point is that whether living in China, or in the UK, far more research takes place compared to UK counterparts. The starting point of property buying is not to go to developers and agents to browse portfolios,” Di Lieto explains.

“Initial investigation begins with seeking recommendations from trusted sources such as friends, family and respected peers, and then social media key opinion leaders (KOLs). KOLs play a fundamental role in all areas of China’s consumer society. They are authority figures on particular product or lifestyle areas, and frequently have great influence on the subjects they specialise in.”

She argues KOLs have far more reach and power than social influencers in the West, and says there are many that focus on the UK residential property market.

“Sellers should work with appropriate KOLs, but it is important to identify the right ones. To get the best value from them, they should be provided with relevant information designed to engage the target audience to draw prospects into the sales funnel.”

Di Lieto says prospective Chinese buyers also spend a considerable amount of time searching investment reports and relevant video content, as well as following property news portals. The next stage is attending on and offline property events, including livestream broadcasts.

“Livestreaming became massively popular during the Chinese lockdown, and is now the nation’s single most powerful sales format,” Di Lieto claims. “It is a versatile medium through which to give audiences property tours, introduce architects, designers, describe amenities and, importantly, run Q&As to provide specific information important to the buying decision-making process. It is not uncommon to sell property directly off the back of livestreaming.”

The survey also reveals that social media platform WeChat – the Chinese equivalent of Facebook, Twitter and Instagram combined – is the preferred conduit for making contact with developers or agents.

“It is important to know WeChat is a closed platform, meaning only those that follow a particular WeChat account can see an account’s content. To the rest of the world, it is invisible. It means prospective followers have to be made aware and recruited using WeChat advertising, or other social platforms,” Di Lieto says.

“The ideal solution for sellers is to create a WeChat mini programme. This is like having a branded functional website sitting within social media. Because of the depth of information content Chinese buyers seek, mini programmes are ideal for creating high levels of effective engagement with buyers, and a good way to move them into the sales funnel.”   

Di Lieto says it’s also worth noting that social media, not a search engine like Google, is the main conduit for online research in China. Peer-to-peer recommendations on social media are often highly influential, and ‘create a positive legacy’.

“Also, social listening is an extremely effective method for tracking market changes and sentiment in real time. The advantages this gives over rivals is very significant,” Di Lieto adds.

“The survey also identified barriers to purchase. There are two – the buying process itself, and for some mortgage applications. Developers and agents can address this positively by being prepared to explain and assist in advance, and highlight the benefit in marketing content.” 

The key takeaway from the report, Di Lieto explains, is the fact that Chinese buyers follow a different buying pattern to other nationalities. They may seem more demanding, but this actually presents an opportunity, Di Lieto says.

“Few sellers properly meet prospective Chinese customers on the terms of the buyer,” Di Lieto continues.

“Those that do benefit in two forms. The first is sales, but the secondary advantage is also important. Happy buyers will effectively promote the seller to generate new leads. Recommendations are powerful, long lasting and grow sales in the short, medium and long term.  

A free copy of the survey is available via this link.

Evidence of ‘club’ deals by foreign investors

A leading tax and advisory firm claims that overseas investors are setting up ‘club deals’ in an effort to manage new stamp duty surcharges that came into place yesterday (April 1).

Sean Randall, a partner at Blick Rothenberg, said: “From April there is a combined 5% stamp duty surcharge for overseas investors buying buy-to-let properties in England and Northern Ireland, giving an effective top rate of tax of 17%.”

He said evidence is already emerging of an early change in behaviour, with foreign investors joining ‘club’ deals where they take a share of a collective purchase of six or more properties rather than investing in a single buy-to-let personally.

“Such purchases are taxed as if they were non-residential property, meaning that far less stamp duty is payable, and this is before taking into account a bulk-purchase discount,” Randall added.

“For example, the total amount of stamp duty payable by six non-resident individuals purchasing one £2 million property each independently would be close to £1.5 million. In contrast, the total amount of stamp duty payable in a ‘club’ deal would be under £600,000 – a 60% tax saving.”

Randall said buying agents have been bullish that the market will likely absorb the additional 2% surcharge, at least in London.

“They say that prime central London property is good value, London is still regarded as a safe haven for overseas capital and the value of sterling is still relatively low,” he continued.

“However, the trend for ‘club’ deals, which, of course, is a reasonable choice and cannot possibly be regarded as ‘tax avoidance’, suggests the opposite. The ‘six-or-more’ rule is ingrained in the stamp duty legislation. It is practically the only thing stopping professional investors in residential property suffering the stamp duty surcharges and prohibitive standard residential rates.”

Yesterday, the rates of stamp duty land tax for non-UK residents (including some expats, as well as wealthy overseas individuals and companies) changed with the introduction of the new surcharge.

As a result, the rates are now two percentage points higher than those that apply to purchases made by UK residents. The surcharge applies to purchases of both freehold and leasehold property, as well as increasing the SDLT payable on rents on the grant of a new lease.

The surcharge also applies to certain UK resident companies that are controlled by non-UK residents, but does not apply to purchases of non-residential property or mixed transactions unless Multiple Dwellings Relief is claimed.

Subject to certain conditions being met, relief is available, and there are also certain circumstances when the surcharge does not apply.

It currently only applies to land or buildings in England and Northern Ireland. More information about Scottish or Welsh transactions is also available.

You can find out all you need to know about the new surcharge here.

How will the 2% surcharge affect demand?

Harry Buchanan, director at long-established estate agency Jackson-Stops, believes the surcharge now in force for non-UK residents will not affect international demand: “We expect prime central London to remain an extremely attractive prospect for international buyers. In fact, we anticipate many more overseas buyers will return to the market once international travel restrictions are lifted.”

He added: “We therefore expect demand to remain strong going forward, especially as the UK continues to roll out one of the world’s fastest vaccination programmes, which will boost economic activity in the coming months.”

He says the agency is already starting to see pent-up demand overseas buyers starting to build, with the number of buyers visiting its website from the UAE increasing by 31% over the past two months, while website searches from Hong Kong have risen by a third.

“In particular, more buyers from Hong Kong are getting in touch following the UK’s offer of an easier path to citizenship for Hong Kongers with British National (Overseas) passports. These buyers are specifically looking to become owner occupiers, and are particularly keen to be close to good schooling.”

He concludes: “The increasing demand we are seeing gives us a strong indication that interest in prime central London will continue to be high, especially for turn-key properties that can double up as a lock and leave which we know tend to be most sought-after by foreign buyers, as well as properties close to transport hubs.”

This post has originally been featured in Property Investor Today.