What Can Foreign Investment Teach Us?

 

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Heritage Explorer no longer operates a Secondary Market. Any reference to a Secondary Market was accurate at the time of posting.

The boom of Chinese investment in the property sector has headlined news sites in recent weeks, but the focus has been on the consequential social injustice of “raising prices beyond the reach of most people in previously cheaper London neighbourhoods.” (1)

We decided to look at the news through the eyes of the east, and find out what foreign investment behaviour can tell us about the UK property market.

China’s hunger for overseas property can be “traced back to the turn of the century,” according to Charles Pittar, chief executive of China’s largest international equity website. (2) Pittar claims that China’s foreign investment “could be growing to somewhere around $200bn [annually] over the next 10 years.” (2)

Pittar pins this hunger down to four main motivations; “investment, lifestyle, emigration and education.” He explains, “Many are looking for a foothold in the UK, where they hope their children will go on to study.” (2) This opinion sheds some light on the UK’s perception from the east, as it proves the UK is viewed by others as stylish, credible and full of opportunity.

Historically, London has been the main appeal to foreign investors interested in the UK. Victor Li, a director of international project marketing at CBRE calls London a “safe haven” for investment. (2) He explains the elitism of being able to say, “I own a piece of property in London,” (2) highlighting the level of admiration and prestigious regard foreign investors have for the capital city.

However, recent figures show London is losing its charm, and more attention has been devoted to cities in the north. This stems from an improvement of transport links in the north and better value for money. London’s high prices apparently render investment “too risky,” which has persuaded “many foreign investors to buy a larger number of cheaper properties in more peripheral, suburban areas.” (2)

For example, “particular spotlight has been shining on Manchester since last October, when Chinese president Xi Jinping toured the city to lend his support to George Osborne’s “Northern Powerhouse” project during his first state visit to Britain.” (2) In addition, Liverpool has put itself on a pedestal due to “New Chinatown – or Xinhua Bu (New China Wharf) in Mandarin,” which is an investment venture worth £200m. (2) It has been described as “one of the most important and exciting developments in the UK today” and expects to become “one of the UK’s most luxurious and desirable residential destinations.” (2)

The BBC supports this notion in claiming Chinese property investors have been “lured by George Osborne’s promotion of the “Northern Powerhouse”, and since then “Chinese investors are packing their bags and heading up the M6.” (3) Apparently, since the beginning of the year, Hong Kong Homes, an equity firm who have been leading seminars on the benefits of investing in the north has “already sold more than 400 flats in Manchester, Liverpool and Sheffield to Chinese clients.” (3) Charis Chan, the senior manager of Hong Kong Homes’ international property division confirmed this, in noting “There are a lot of people switching from London,” (3) for reasons such as new infrastructure, the extension of HS2 to Leeds and Manchester, and the development of Manchester’s tram system. (3)

Moreover, this migration of interest has also been influenced by an attempt to avoid “heavy stamp duty bills.” (4) According to The Evening Standard, the “current system of stamp duty means a purchaser buying a £1.5 million apartment in Mayfair would have to pay more than £138,000, including a three per cent stamp duty surcharge on buy-to-let properties. However, by spreading the same investment on about six cheaper flats of £250,000 each, the bill is reduced to £60,000 — a saving of £78,000.” (4) This has certainly been reflected in recent statistics. For example, “Recent property surveys show prices in the most expensive central London boroughs such as Kensington and Chelsea are tumbling — in large part because of the huge stamp duty burden — while those in more affordable local authority areas on the fringes of the capital, such as Waltham Forest, continue to surge by up to 20 per cent a year.” (4) What this information teaches us is that central London is losing its appeal as a geographical dream for investment. In fact, its the neighbouring areas which are predicted to bloom.

Essentially, the commuter area has become much more appealing i.e. anything between 20-30 minutes away from London. Jonathan Gordon, a director at Hong Kong property investment firm, IP Global, says that, “The fringes of London have…come onto the radar of Chinese investors, thanks to Crossrail, a £14.8bn, 73-mile metrolink cutting west to east across the capital, which is set to open in 2018.” (2)

Not only should we look at where foreign investors have their eyes on, but we should also look at what foreign investors have their eyes on. For example, “CBRE said some experienced investors have started to invest in alternative sectors such as student housing.” (5) Marc Giuffrida, executive director of CBRE Global Capital Markets explained, “Office investment continues to be an easily understood and managed asset class for most investors. However, as cap rates continue to compress globally, investors are starting to seek out higher yielding opportunities in secondary locations or ‘alternative’ real estate sectors, such as student housing.” (5) This is an emerging trend that Heritage Explorer has definitely caught on to, with investment opportunities and recent blogs exploring the demand for student accommodation in areas like Stoke-On-Trent (6) Sheffield (7) and Preston (8).

On a larger scale, though, Chinese investors aren’t only focused on England. In fact, research shows that “Scotland is becoming a hotspot for Chinese property investors looking for an alternative to buying in London.” (9) Despite the fact that “There are still relatively few homes in Scotland currently owned by Chinese citizens…experts predict that the number will boom over the next five years.” (9)

Chinese investment also spans beyond Europe. Both the US and Canada have attracted an incredible amount of money from Chinese investors. For example, “Over the past year, the price of a single family house in Vancouver increased by an incredible 30%, to an average of $1.4m. It’s just the latest, most dramatic jump in an already dramatic long-term trend that has turned the beautiful but unassuming Canadian city into one of the world’s least affordable, with a housing price-to-income ratio of 10.8.” (10) To contextualise, “That’s third after Hong Kong and Sydney, and well ahead of London, which ranks eighth at 8.5.” (10) Apparently, what has been driving this rise is “an unprecedented flood of foreign capital, mainly from China.” (10) The appeal of Vancouver to foreign investors comes down to relaxed regulation on capital flows, low property taxes and wealth-friendly immigration programmes, making it a hot-spot for foreign investment. (10)

In regards to the US, CBRE noted that “Chinese invested $16.1 billion in overseas real estate in the first half of the year [2023], more than double the amount in the same period last year.” (5) Prior to this, according to a report by the Rosen Consulting Group and the Asia Society, “Between 2010 and 2015 Chinese buyers bought $93 billion in residential real estate, nearly $208 billion of mortgage-backed securities, and roughly $17 billion of commercial real estate, including office towers and hotels.” (11)

The avoidance of Chinese nationals investing in China speaks volumes about its market. Indeed, Ada Choi, senior director of research at CBRE Asia Pacific is validated in saying, “Concerns over the market slowdown in their home market have led Chinese investors to seek a safer investment environment which offer higher potential returns.” (5) This has allowed us to recognise trends in the property market, such as London’s lost charm, the potential in the north and the stability of student accommodation.



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Sources

  1. https://www.theguardian.com/cities/2023/sep/29/london-mayor-sadiq-khan-inquiry-foreign-property-ownership
  2. https://www.theguardian.com/cities/2023/sep/29/inside-china-passion-foreign-property-investment-uk
  3. http://www.bbc.co.uk/news/business-36086012
  4. http://www.standard.co.uk/news/london/foreign-investors-buying-up-flats-in-suburbs-after-stamp-duty-hike-a3336676.html
  5. http://fortune.com/2023/08/18/china-overseas-property-investment/
  6. https://heritageexplorer.org.uk/blog/student-accommodation-stoke-on-trent/
  7. https://heritageexplorer.org.uk/blog/student-accommodation-sheffield/
  8. https://heritageexplorer.org.uk/blog/student-accommodation-preston/
  9. http://www.coultersproperty.co.uk/chinese-investors-look-scottish-property-buy
  10. https://www.theguardian.com/cities/2023/jul/07/vancouver-chinese-city-racism-meets-real-estate-british-columbia
  11. http://www.cnbc.com/2023/05/16/chinese-investors-have-spent-300-billion-on-us-property-mbs-rosen-study-finds.html

 

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