Investment in London residential properties by Chinese investors, including those from Hong Kong and the mainland, has increased rapidly post-Brexit. More favourable exchange rates make buying cheaper. Diversification, wealth preservation and UK schools and colleges are also the main reasons. Here I breakdown why these factors are now making so much sense to the Chinese who are investing in London residential properties right now.
Favourable Exchange rates
Post Brexit, interest from the Far East in London property has absolutely increased, especially considering the falling sterling pounds. Chinese investors now can get more for their money. Ten years ago the exchange rate was 15.16 Chinese Yuan to £1 and now in 2016 it is 8.62 Chinese Yuan to £1, which is almost half making investment a very sensible option.
Low interest rates and mortgage rates
Britain has enjoyed years of low interest rates. Some mortgages are available now for as low as 0.99%, as at August 2016, making borrowing as affordable as possible. The Monetary Policy Committee also reduced the Bank of England Base Rate to a historical low of 0.25% earlier this month. This has resulted in lenders reducing mortgages rates even further, making mortgages more affordable to prospective Chinese investors.
Good rental prices in London make sense for buy to let
Rental prices have remained fairly stable post Brexit. The average rental price for a two bedroom property in London now stands at £1,785 a month. In fact, London rental prices faced a 7.7% increase over the last twelve months to April 2016, according to the latest figures from referencing firm HomeLet. This is due to the demand surpassing supply. Additionally due to taxation changes relating to wear and tear allowances, plus the additional 3% Stamp Duty surcharge on second homes. Excitingly UK rental prices are forecast to increase by a further 16% by 2018, due in part to exciting projects such as the Crossrail, which is due to open in 2018. Transport links are a top priority for tenants and the areas surrounding with train stations always yield higher.
Strong demand in London residential property offers capital growth
Brexit has not yet affected the UK’s demand/supply imbalance, which is a key feature underpinning current housing market trends. The imbalance is most noticeable in London and the South-East, where decades of undersupply have contributed to the on-going need for a considerable uptick in construction activity. Moreover some developers have also slowed down on construction due to Brexit uncertainty, which will further dampen new homes coming in the market. This in turn puts extra pressure on a serious shortage of housing supply in some areas, particularly London.
Greater London Authority’s 2013 Strategic Housing Market Assessment indicates that London will require between approximately 49,000 (2015-2036) and 62,000 (2015-2026) more homes a year. London residential property completions are far below the amount required each year to meet the increase in the population. Due to this large housing shortage, experts predict house prices could rise 25% by 2018 – extremely attractive for investors. Both East and West London have been through a lot of regeneration and gentrification due also Crossrail. This has helped achieve stronger capital growth and higher yields.
Brick and Mortar Vs Volatility of Chinese Stock Market
With the recent volatility of the Chinese stock market, Chinese investors are now increasingly looking for offshore havens. London residential property continues to be regarded as one of the world’s best stores of wealth. This is because London has proven its resilience, bouncing back strong from recession. In general if investors purchase with a medium- to long-term view, then their investment as a business or home will be safe. Recently the perils of the Chinese currency RMB devaluation mean London residential property investments are seen as a wealth preservation strategy for Chinese investors.
Open to Foreign Owners and Investor Friendly Policies
Since the recession of 2008, property in London has been a safe haven for wealth, attracting investors from all over the world. As there are no restrictions on foreign nationals owning property and no ‘wealth taxes’ as in France and Spain. Hence property is far more freely transferable than in other countries. Furthermore, in July 2014, Asian Business Port (ABP), a Chinese developer Mr Xu Weiping, received planning permission from Newham Council to commence the £1.7 billion construction of offices, apartments and retail space on currently derelict land in the Royal Albert Docks area. ABP is creating London’s third financial and business district. The Royal Albert Dock project will be unique – it will be the headquarters of Chinese and other Asian companies, enabling them to reach new markets across Europe. It will also be the centre for European companies looking to trade. The £1.7 billion investment to create the Asian Business District at Royal Albert Dock in London will result more than 30,000 jobs, and generate £6 billion to the London economy. It will be a platform for those companies to thrive and prosper and will be the economic engine that will power the economic growth of the Royal Docks.
Britain is also renowned for its stable and transparent political and legal system. London is a world-leading centre of financial services, banking, insurance, foreign exchange and bond trading. It is host to over 500 banks including more than 250 foreign banks.
Chinese investment over the last 10 years has increased significantly with the most recent development of the construction of a third London business district, the ABP. China’s investment into the UK has increased exponentially, which can be seen from a number of Foreign Direct Investment (FDI) reports. Investment into the UK; year 2008 £595 million compared to 2015 £4billion. In my opinion, London will remain as the strongest magnet for Chinese investment in the UK and Europe; more so post Brexit. Chinese headquarters are more numerous in London than anywhere else in Europe. This should remain, underscoring the importance that Chinese and also other foreign investors attach to London and the UK as a gateway to the Western markets.