The Chinese investors in the London luxury property market

As the world’s economic centre of gravity shifts eastward, Chinese and other Far-Eastern buyers are investing part of their wealth in the global property market. In this post Becca Wu has examined the reasons why London’s luxury real estate market is increasingly popular among Chinese investors.

In one of our recent posts we have analyzed the impact of the Chinese buyers on the global property market. While the net growth of foreign direct property investments has been steady, most of the gains are concentrated in a limited number of locations. In Europe, London has outperformed any other luxury real estate market and the phenomenon has not been limited to residential properties as it was reported by a recent article on the lure of London’s commercial properties published by the Financial Times.

Prime central London residential is like the gold reserve of real estate

One of London’s unwaning attractiveness stems from its combination of stable yields, diversified demand and lax foreign investment restrictions. According to Chesterton Humberts Research, in June 2012 the Prime London Residential Yield was standing at 4,22%, and well below 4% for some of the most exclusive neighbourhoods such as Belgravia, Mayfair, Chelsea and Kensington. In December 2012 luxury property prices in core central locations have been up 8,7% year-on-year according to Knight Frank Research, with Hyde Park, Knightsbridge and Islington leading the way in recent months.

As far as safe havens for capital go, “Prime central London residential is like the gold reserve of real estate”, explains Nick Candy, chief executive of Candy and Candy, a luxury London property developer. In addition Chinese currency appreciations have made real estate more affordable even though property prices have risen significantly in recent years.

While some Chinese buyers mainly desire to make a stable investment and rent out their property after purchase, many others are looking to use the house for educational or business reasons. In fact a recent survey showed that 85% of Chinese millionaires consider buying a property abroad not only a good financial investment but also a good family investment. This is another reason why the English capital looks particularly attractive, being one of the true global economic hubs and hosting a number of highly respected universities and business schools. According to Think London, a government-supported agency that aims to attract foreign investments, top London universities tend to admit more foreign students than US universities, and as such, many Chinese parents have bought London properties for their children studying abroad.

Other times Chinese adopt a mixed strategy, buying more than one apartment in the same area, renting all of them but one which they use for themselves.

Within London, Chinese often tend to buy apartments in new developments, some of the most attractive of which are around Knightsbridge and Canary Wharf. One Hyde Park near Knightsbridge is an ultra-luxury development managed by Candy and Candy with apartments from £7 to £136 million, with more than 80% foreign buyers, of which 40% are Asian. In the last month, the 5 latest flats sold in the complex were to Asian buyers at an average of £6,000 per square foot.

In the rest of central London, home prices have risen over 50% since 2009, thanks in no small part to increased foreign demand.

While there are investors who come to London well-researched and trained, more often, Chinese buyers just have an idea of what they want and bring with them a lot of cash. The risk is that they are not well aware of significant price differences between core locations and less prestigious ones and end up paying an unnecessary premium or, more simply, an overpriced property.

For what they may lack in technical preparedness, Chinese buyers make up for in readiness to pay on site and in cash

As Simon Gammon, managing partner at Knight Frank Finance explains, “Many foreign multi-millionaires are landing in the country and walking into estate agents on spec. They don’t have a lawyer or any tax advice but want a house in London they may have seen on the internet.” For what they may lack in technical preparedness, Chinese buyers make up for in readiness to pay on site and in cash. Due to governmental restrictions on foreign investments, Chinese investors are often reluctant to go through the hassle of getting investments legally approved. To skirt around the domestic limit of buying up to $50,000 in foreign currency, many Chinese investors borrow allowances from friends and family, or use funds, such as many located in the UAE, to pool together buyers and cash, which makes it difficult to accurately estimate the size of Chinese investments abroad.

UK based residential firms are responding by ramping up their efforts both at home and abroad with a twofold objective: taking part in the Asian boom and bringing more international business to their European subsidiaries. In Asia, firms are not only opening more local offices but also expanding their presence by spending lots on advertising and special events. In a recent edition of the China Daily this summer, Berkeley Homes, a luxury London developer, in conjunction with Colliers International, took out a full-page advertisement showcasing 4 of its most luxurious properties. Outside of print media, in July 2010, Savills organized a real estate seminar in Shanghai teaching 100 investors how to buy in London. Elite clubs like the Shanghai Travelers’ Club have organized expensive tours for its members in London with the aim of viewing and potentially acquiring luxury properties.

The number 8 is thought to be lucky… apartment 88 was under contract to a Chinese buyer for $50 million

At home many firms have invested in hiring Chinese-speaking brokers and are also tailoring development projects to Chinese culture by incorporating Feng-Shui design, building a separate space for a wok kitchen, omitting the number 4, which is thought to be ominous, and incorporating the number 8, which is thought to be lucky. The latest in luxury Manhattan high-rises, One57, is due for completion in 2013 and has placed some of its most luxurious full-floor apartments on floors 80 to 89. As of June 2012, apartment 88 was under contract to a Chinese buyer for $50 million.

Chinese numerology apart, as 2013 starts, the numbers of the UK real estate companies dealing with Far-East property investors seem to be the ones that bring best luck.

Becca Wu is a current MBA student at London Business School, with a background in management consulting in the U.S. She has extensive experience helping companies across a wide variety of industries identify inefficiencies and cut costs, with a focus on supply chain operations. She has an avid interest in European real estate financing and development. Along with blogging for Te Atrium, she works part time at Ennismore Capital, a hospitality investment fund in London.

Contemporary homes in Canary Wharf |Luxury Property in Fitzrovia | Search for the best homes in Hampstead | Fine homes of Marylebone | Luxury mansions available in Notting Hill | St John’s Wood, prime residences | Exclusive real estate in Piccadilly | Search for exclusive properties in London | The best homes in Maida Vale | Buy or rent a townhouse in Fitzrovia |Find a property in Primrose Hill | Find the best properties for sale and rent in Fulham | Prestigious homes in Bayswater | Buy a house in Little Venice | Best homes in Covent Garden | Buy or rent in Westminster