Chinese Investment in UK Property
Worldwide, the UK property market has a reputation for being safe, stable and home to many opportunities for investors. Even with the economic pressures of Brexit and the Coronavirus Pandemic, the UK property market remains popular and housing is well sought after by Chinese and global buyers who remain optimistic about the market’s trajectory. In this article we take a look at the trends surrounding Chinese investment in UK property, what Chinese investors look for and the economic impact of Brexit and the Coronavirus Pandemic on property purchases.
Why are Chinese People Buying Houses in the UK?
For many Chinese investors, the UK is a more attractive investment destination than other countries due to several factors. First, the UK is internationally recognised for the quality of its education and many Chinese investors educate their children overseas, often purchasing property for them to live in during their studies. Other Chinese investors make use of the UK’s thriving buy-to-let property market and invest in UK property for rental income. Some buy real estate to live in while abroad, and others purchase international real estate as part of their investment diversification strategy as they look to build a property portfolio overseas.
Another reason the UK property market is attractive to Chinese investors is that it is not a requirement to be a British citizen to purchase property (although foreign investors may have fewer financing options as banks tend not to lend to non-UK residents). While the market is open to foreign investors, unlike some other countries, buying a residential property will not lead to residency or citizenship (read more about buying property in the UK as a foreign investor here). The UK property market has a pattern of retaining its value and delivering a return on investment, which makes it attractive to overseas buyers. Chinese investors also look to the UK as a country with a strong rule of law and stable democracy where property rights are protected.
How Much Property Does China Own in the UK?
In recent decades, the Chinese economy has gone from strength to strength to reach a GDP of more than USD14.4 trillion, making it the second-largest economy behind the United States at USD 25.3 trillion.
The rapid acceleration of wealth creation in China has created a new money middle class as well as a new money super-rich elite. These high-net-worth individuals are affluent enough to seek out property around the globe to diversify their wealth and investments. China is home to around 2.3 million high-net-worth individuals. There are also 26,700 ultra-high-net-worth individuals – those with $30 million or more in investable wealth. China has money to spend, and London is one of the most popular markets for Chinese property buyers as a lucrative and reliable investment destination. The city’s position as a global financial centre, lifestyle destination and its strong international education offerings means property in the capital remains a safe haven for Chinese investors and chinese investment in UK property remains steadfast.
Figures from 2016 show that Chinese investment in UK property and property purchases reached around £1 billion. In 2018, London was the number one destination for Asian outbound capital. After the Brexit referendum, interest in UK property from Chinese investors increased, and at the start of 2020, coinciding with the start of the Coronavirus Pandemic, Chinese buyers made 9.5% more enquiries for UK property than the previous year.
In 2019, Hong Kong and Mainland Chinese buyers invested £7.69 billion in London property, the majority of this in the boroughs of Chelsea, Kensington and the City of Westminster. 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. In 2020, Chinese high-net-worth individuals put 12.5% of their wealth into assets overseas, with London coming in top of the most popular investment destinations.
What do Chinese Investors Look for in UK Property?
London Remains the Most Popular Location
For Chinese investors, the London real estate market is the most popular in the UK, mainly due to its maturity. Chinese investors tend to be area conscious and seek out property in the most desirable locations of the capital, placing key emphasis on the location and the building over the property’s features. For many Chinese investors, owning a property in London is a status symbol as well as something they can pass on to the next generation.
London furthers its appeal with Chinese investors as the capital offers unrivalled connections to key centres all over the world. The capital is the best-connected city on the planet with 351 connections to key cities worldwide. Nationally too, transport links are improving and new infrastructure projects offer fast access to key cities and further afield. The Crossrail and High Speed 2 (HS2) railway projects will reduce commute times across the country and are also opening up new property markets that can offer a strong return on investment.
When it comes to property types, Chinese investors tend to favour one and two-bedroom apartments. New builds are of particular interest as Chinese investors look for low-maintenance modern homes that are well-constructed and well-designed.
Amongst Chinese investors, there are several groups seeking different price points based on their budget. The first group look for one and two-bedroom newbuilds that can be used as rental investments in key locations like The City, Islington, Chelsea, Fulham and Canary Wharf. Often these prestigious properties are priced up to £2 million and investors look to achieve a yield of between 3-5%, favouring properties off-plan to gain a price advantage or discount.
Upper-middle-class Chinese investors typically spend between £5 million to £10 million and seek out luxury homes or those suitable for families in locations like Marylebone or Regent’s Park. Many investors in this bracket send their children to study in London and may look to purchase apartments that their offspring can live in as well as properties that will provide a steady long-term investment. Typically, this investor group seeks out apartments with a value between £750,000 to £1.5 million in areas that are in close proximity to schools or universities in London.
The third group of ultra high-net-worth investors will seek out a luxury property in the capital’s most prestigious addresses, spending anything upwards of £15 million. These wealthy and business elite may purchase mansions in areas like Mayfair, Knightsbridge or penthouse apartments in key apartment buildings in central London.
Chinese Investors Look to Student Cities
UK investment in Northern Powerhouse cities, as well as projects and investment being undertaken by Chinese construction groups has put the UK’s Northern cities on the map. Cities like Manchester, Leeds and Liverpool are key student cities in the UK and many Chinese investors purchase property when their children attend university. In the 2019 – 2020 academic year there were around 538,615 international students studying in the UK. Of this number, Chinese students are the largest cohort with around 216,000 students.
The UK’s education system is a big attraction for many Chinese investors who may time their investments for when their children begin their studies as well as considering the optimal timing for long-term growth and returns. With the Coronavirus pandemic, interest in student property has slightly slowed due to lower demand for accommodation as more students undertake online courses or distance learning. Currently, we are seeing more Chinese inventors hold off to monitor the market for student accommodation for the time being.
Are Chinese Investors Still Buying Houses?
Right now, the weak Pound presents a timely opportunity for foreign investors to purchase UK property at a better rate. Investors can get more for their money, and the Hong Kong Dollar and Renminbi to Pound exchange rate makes property in the UK attractive for investors from Mainland China and Hong Kong SAR. While the UK economy is expected to see a slow down in the short-term, in the long-term, Chinese investors are still optimistic and view UK property as an attractive avenue to diversify their investments with plenty of potential for economic growth.
London is still likely to remain the property destination of choice for Chinese investors, largely due to its liquidity and its position as a cultural, political and financial centre. While Chinese investors buy across the capital, the most popular areas are Central London, Canary Wharf and Woolwich.
Increasingly, regional cities like Liverpool, Leeds and Manchester are catching the eye of Chinese investors due to the great yields on offer and well-sought after universities. Generally, UK cities tend to offer much higher yields and liquidity than the main Chinese cities like Beijing and Shanghai, as well as out-pacing other key cities like New York, Sydney and Toronto, which is why Chinese investment in UK property is on the rise. Liverpool has some of the highest-performing yields in the country, and properties in the city centre L1 postcode can generate yields of 10%. In Manchester too, the average value of property through 2024 is set to grow by 17.1% and average rents in Manchester now sit at around £1,115 per calendar month. These figures are all attractive to Chinese investors who are beginning to consider areas further afield than London.
What Does the Future Look Like for Chinese Property Investment?
China’s enthusiasm for overseas property is unlikely to wane anytime soon and Chinese investors recognise the long-term investment potential of UK properties. With the Coronavirus Pandemic and still some uncertainty post-Brexit, in the short-term Chinese property investors in the UK are being more cautious, yet on the whole remain optimistic that the UK property market remains a safe and profitable destination. London, in particular, will remain a Chinese investment hotspot due to its strong economy and world-class educational institutions.
Chinese investment in UK property remains popular despite recent economic changes. Overall, London remains the most sought-after spot, with many Chinese investors searching for trophy homes or apartments for their children when they study abroad. While the capital remains the number one location, increasingly, Chinese investors are looking to Northern Cities where rental yields are higher and housing prices are increasing at a faster rate. Looking to the future, it’s likely Chinese interest in the UK property market will remain steadfast as investors consider long-term economic growth. To find out more, get in touch with our property experts.