A huge new wave of Chinese investment in overseas housing may be about to flow into the global market. In Hong Kong, Tom Phillips meets the salesmen who market British property to mainland China
by Tom Phillips in Hong Kong
“China is so big,” marvels Victor Li, using his fingers to count all the cities he has flown to over the last 12 months to meet with cash-rich Chinese buyers interested in buying into a real-life game of London Monopoly.
Li, a director of international project marketing for the US real estate giant CBRE, is predicting a surge of eastern investment in British homes over the next decade, as increasingly affluent Chinese investors acquire a taste for international property.
“I think it is just beginning,” says Li, of the amount of money pouring into property around the world from mainland China. “You do the figures: China has a population of 1.4 billion. If you target only 1% of China’s population, that’s 14 million people – so it’s already almost two Londons.”
Sitting in his office overlooking Hong Kong’s skyscraper-dotted Victoria Harbour, Li estimates that just 3% of potential Chinese investors in overseas property have so far been found – meaning a virtually untapped goldmine lies over the border in mainland China. “China is a big market, you know?” he says. “They are getting wealthier and wealthier.”
Rich Hong Kong investors have been ploughing money into British bricks and mortar for decades, snapping up off-plan apartments at weekly property fairs that can then be rented, flipped, held as investments or used as second homes.
“I have one [London property] in Canary Wharf, one in City Island, one in Wembley Park, one in Elephant and Castle,” said one investor matter-of-factly at a recent expo in Hong Kong’s chic Mandarin Oriental Hotel, as he eyed a new development near the Thames Barrier in E16.
But many real-estate agents and property experts in east Asia believe a new wave of investment is just getting under way, as mainland investors develop a taste for international real estate, including postcodes up and down the UK.
“Our thesis – and this is supported by quite a lot of evidence – is that in many ways the international Chinese investment journey is probably just starting,” says Charles Pittar, chief executive of Juwai.com, a website that aims to pair mainland buyers with property developers in places such as Australia, the US and the UK.
Pittar’s company, which lists 2.5 million properties and calls itself China’s largest international real-estate website, estimates that in 2014, Chinese outbound investment into residential and commercial property was more than $50bn (£38bn).
“I guess the key is: what is it going to become?” Pittar says. “Our view is that … it could be growing to somewhere around $200bn [annually] over the next 10 years.”
And Britain, despite its decision to leave the EU, is expected to be one of the key focuses, he adds. “The UK market, particularly post-Brexit, is really picking up.”
Pittar traces mainland China’s hunger for overseas property back to the turn of the century, just before China’s entry into the World Trade Organisation signalled the latest phase of its integration into the global economy. But the outflow of money has gathered pace over the past decade, and is set to grow further as middle-class investors from second- and third-tier cities get in on the game.
“It’s a big market now, but it is likely to be anywhere from two to four times the size in 10 years’ time,” Pittar says. “The exciting thing about China is that there are 168 cities with more than a million people. So this is just such a huge market.”
Li, who specialises in London properties worth up to £4m, concurs with the notion that Brexit is helping to accelerate the boom in interest in the UK: “Some of my clients at the beginning of the year, they said: ‘OK Victor, let’s wait, wait, wait.’ And then, after they found out about Brexit and [the] sterling came down more than 10%, I got more calls – they want to go back into the market. It’s lots of saving,” he says with a grin.
According to Pittar, Chinese who buy property overseas have four main motivations: investment, lifestyle, emigration and education. Many are looking for a foothold in the UK, where they hope their children will go on to study.
“Some people are buying for their family to use it,” says Li, “some are buying to diversify, some are buying because they want to own a property for investment – and some people are buying for prestige, to say: ‘I own a piece of property in London.’”
Crucially, he says, London is also seen as a secure place to store money that investors want to move out of China, to guard against the devaluation of the Chinese currency, the yuan. “People in mainland China, they want to get their money out … They believe that money out of China is safe money. And London is a safe-haven to park that money.”
The 50-year-old property salesman made his first foray into mainland China in 2001, pitching a slice of Lambeth’s St George Wharf to would-be investors at a five-star hotel on Shanghai’s answer to Oxford Street.
Over the past year alone, Li has made almost 20 such trips, jetting out from his base in Hong Kong to cities including Guangzhou, Chongqing and Chengdu to meet with cash-flush Chinese buyers.
“This one is Macau … This one is Shanghai,” he says, flicking through photographs on his smartphone of recent seminars where he advertised luxury London developments such as Clipper Wharf in E1 and Carrara Tower on City Road.
Li says some mainland investors agree to buy apartments on the spot. “If they are interested, they reserve the unit – they just use a credit card. They have Union Pay, Mastercard or Visa: £5,000.”
Many of his mainland investors are real-estate tycoons who have made a fortune from their country’s economic boom, and now “just want to take the profits, cash out and move some of their wealth overseas”.
But Pittar believes the story of ordinary, middle-class investors is more significant than that of China’s globe-trotting, Ferrari-driving elite. “What we read in the newspapers is always about the very wealthy Chinese who come and buy a £5m, £10m, £15m property. But the middle class is key. How big is the middle class? It could be 120 million. We tend to think it’s probably closer to 150 million.
“Once they’ve got somewhere to live in China, the reality is that the domestic market is quite expensive, so that’s why they are looking more for international opportunities. Like anyone who wants to preserve their wealth, diversification is important.”
Predictions that a new wave of investment from mainland China is on the horizon will stir further debate over the measures British politicians might use to protect local home buyers.
The anticipated influx of money from mainland China into the UK is set to affect not only London – historically the focus for much east Asian investment – but cities such as Manchester, Liverpool and Birmingham, to which more of the investment is now heading.
“Those seem to be the hotspots,” says Neil Jensen, the Hong Kong-based regional director for London estate agent Fraser & Co, who promotes developments in the capital to Asian investors.
A 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.
Jensen says Fraser & Co, founded in 1995, has traditionally specialised in London properties which it markets internationally through offices in Dubai and Hong Kong. Now, however, he is preparing to offer his clients their first major investment opportunity outside the capital, in a project specifically designed to attract Chinese money.
Called “New Chinatown” – or Xinhua Bu (New China Wharf) in Mandarin – the £200m venture in Liverpool describes itself as “one of the most important and exciting developments in the UK today” and promises to be “one of the UK’s most luxurious and desirable residential destinations”.
The development’s website boasts: “It is the burgeoning energy and dynamism of modern China transplanted into the heart of an historic World Heritage City.” Adding: “This is an historic moment … This is a unique investment opportunity.
“Underpinning the whole masterplan is the idea and motif of the awakening dragon – a powerful symbol of China’s resurgence and status as a new global power.”
Jensen says improving transport infrastructure in the northwest and relatively low prices meant New Chinatown – where two-bedroom duplex penthouses are on offer for up to £546,427 and ordinary one-bedroom flats from £119,211 – would be a hit with Chinese investors.
“You can’t just put up a block of flats in Liverpool and expect people to buy it … If you want foreign buyers there has to be a story,” he says, adding: “They’ll probably go quite quickly.”
The fringes of London have also 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.
“Most of your investors 20 or 30 years ago would have been going more towards the bullseye in dartboard terms,” Jensen says, referring to the centre of London. But improved transport links are now drawing foreign investors to places such as Slough, Ilford and Canning Town.
“The commuter area – anything within a 20-30 minute travel time [of central London] is hot,” says Jonathan Gordon, a director at IP Global, a Hong Kong property investment firm that is promoting projects in Ilford and Croydon and has previously invested in Slough.
“Slough has got Crossrail going through it so you can get to Bond Street in no time,” he says. “It is those sorts of stories we are interested in as opposed to buying in Bond Street itself.”
Crossrail is not the only reason foreign investors are now looking to the outskirts of the capital, though. Investors and industry insiders say stamp duty increases targeting wealthy foreign investors have pushed up the cost of buying more expensive properties in prime locations.
That has led many foreign investors to buy a larger number of cheaper properties in more peripheral, suburban areas, says Gordon, where “transaction costs are lower.”
One veteran Hong Kong investor, with a portfolio that includes properties in London, Manchester and Liverpool, explains: “You buy a large number of properties, but lower-priced ones … You pay something like £200,000 or £250,000, rather than £1m for zone one in Mayfair, places like that.”
This new wave of Chinese investors includes people such as Jody Ye, a 30-year-old from Chongqing, a metropolis in south-west China. In July, Ye paid £200,000 for a flat in Bristol, where she went to university and now lives. She is planning to buy her second UK property.
“Buying property back home is too expensive,” she says. “Investing in the UK is much more cost-efficient.” Bristol is not only “a great place”, but, she adds: “British people think Bristol is posh.”
Source: The Guardian, 2017, View full article here.