China Investors Club kicked off its 2017 programme of roundtable discussions with a fresh look and fresh ideas. Focusing on Chinese investment into UK property, we hosted three speakers (Daisy Zhou, Thomas Gere and Daniel Moraite) who shared updates on the outlook for Chinese investment demand as well as new PropTech designed to promote residential and commercial developments. Here is a summary of the key findings.
4 key numbers- 60% - 75% - 2.5% - £160m
- According to Hurun Institute, 60% of Chinese High Net Worth individuals seek to invest in overseas property in the next 3 years.
- There was a 75% increase in commercial property investment in 2016 compared to the previous year.
- In Q3 2016 immediately following Brexit vote, Hamptons International recorded Chinese buyers accounting for 2.6% of upmarket home purchases compared to 1.8% in Q2 2016. While Russian and Middle Eastern buyers dominate, these figures suggest significant room for Chinese growth.
- Charles McDowell reported sale for £160m of a Mayfair home to a Chinese buyer, the first such reported mega-purchase since Wanda’s purchase in Chelsea for £88m.
Drivers for continued growth in Chinese investment
Education: as we discussed at our 30th November 2016 roundtable, demand for UK education remains very strong and this supports on-going demand for UK property. Surveys indicate that as education is the driver for 40% of all Chinese investment in UK property, so long as this sector remains robust then so will the UK property market.
Pricing: Post Brexit, Daisy got calls from developers stating that there will be discounts on new developments. Combine that with weaker Sterling, this pushes on-going demand.
Second generation buyers: those Chinese nationals that worked or studied in the UK and left 5 years ago are now coming back looking to buy second homes in London. This changes the approach UK developers and advisors will need to take but will be for the better as language and awareness of the “UK-way” will be less of a barrier.
Non-London investment
Manchester developers are making a real effort to engage with Chinese investors. They have even gone so far as to open Sales offices in Beijing and Shanghai. This regional interest is also supported by the opening of direct flights between Manchester and Beijing with Hainan Airlines which was been cited as a significant element in the 30% increase in regional investment over the last 12 months. With cost of property at least 20% lower than London, this is opening up a new market in China for first-time overseas buyers. There is a risk that some developers are offering schemes that do not have long-term value but as with any market, education of the risks and wider market opportunities is essential to ensure continued confidence in the UK property investment market.
Risks facing the market
Capital controls: Since Jan 1st 2017, new rules coming out from State Administration of Foreign Exchange (SAFE) explicitly discourage citizens sending money overseas for property purchase. Some Chinese investors have even had to forfeit their deposit as they cannot get funds to complete purchase.
However, if you have transparent taxable income in China then it is straightforward to access a mortgage facility from Bank of China in the UK although possibly not at the most competitive rates.
However, if you are a business owner with limited salary drawn due to tax reasons then you will need to speak with other Asian banks such as UoB and Standard Chartered. These banks are starting to offer financing options pledged against China based assets.
Unsuitable investments: Since 2010 and especially the last 3 years, those buying property for investment are finding issues around maintenance and re-investment risk following an initial period of guarantee returns. Finding that capital values erode and maintenance costs increase on illiquid assets will require careful handling to ensure confidence in the UK market continues. That said, the cost of holding a UK property over the medium term is still cheaper than in other locations such as USA or Australia.
Structured products: Historically it has been rare to offer structured products to Chinese investors. In line with the 2nd generation investors mentioned above, there are more investors interested in taking advice on structuring tax and legal matters relating to multiple property purchases.
PropTech – new opportunities
Use of technology to help developers sell new build is accelerating. Thomas Gere has developed a world leading VR (Virtual Reality) platform called VROOMX that allows 4 people to simultaneously ‘experience’ the viewing of a new development. With build-times of the virtual show flat being 15 days compared to 4-6 months for a physical, this means that developers are able to get product to their potential customers much faster than would otherwise have been the case. Major developers in China that use the service reported up to a 43% increase in sales conversion rate. UK developers, agents and interior designers that attended the presentation on the 24th January expressed significant interest in the product as they see the potential for accelerating engagement both with Chinese investors and existing UK clients. This will be showcased along with other PropTech on 16th February at Cocoon offices in Shoreditch of which more information can be found here https://www.eventbrite.com/e/property-technology-proptech-arvr-conference-tickets-30518060340?aff=es2
China UK Property MarketPlace 2017
China Investors Club will be hosting a 1-day investor/developer MarketPlace in the coming months. This will bring together Chinese investors in residential and commercial property with UK developers, agents and professional advisors with the express purpose of matching buyers and sellers. This bi-lingual event ensures the most conducive environment for business development both on the day to those attending in person as well as those on-line through our WeChat platform. Any firms wishing to register interest in becoming a sponsor or attending the event should contact William Franklin on william@chinainestorsclub.co.uk
