Evolving relations of UK and China

November 22, 2017

By Simerpreet Kukreja

Key drivers of Chinese investment in the United Kingdom

For long,  New York and London have been the hotspots with the best long-term investment potential by Chinese investors. But recently, London has been a winner in attracting such Chinese investments.

A cheap Brexit pound

The softening of the sterling against the dollar proved as a golden opportunity for investors from Mainland China and Hong Kong to sink their funds into the London real estate market, probably for a discounted price. Further, the depreciation of the Chinese yuan against the US dollar has turned the US investment into an expensive proposition for the Chinese investors.

Well-regulated tax system

One of the main drivers of the market is a transparent and robust legal tax system. A large base of corporate demand across all sectors also is a beneficial factor for the nation. Hence, these factors contribute to the investor confidence in achievable solid returns.

A Domestic appetite for a global capital market

Hong Kong and China have a strong legacy with the UK because a number of CEOs and senior executives are UK-educated, hence their attachment to London is justifiable (JLL, 2017).

China’s outbound investment restrictions

Domestic conditions in China have also contributed to creating a demand for London real estate. Post the investment restrictions were implemented in Q4 of 2016, there were apprehensions of a slowdown of inward investment to London from China, but the volume has and is expected to remain the same, with a more mature and regulated.

Chinese capital also needs overseas investments in order to balance the country’s portfolio in the domestic market. Therefore, London is a safe haven and attracts a lot of money, because investment in the country profitable for reasons beyond access to Europe. I believe a lot of new and experienced international investors are walking this path and expect a large and healthy volume of transactions from the Far east market. Buying capital in London is more of a capital play than an income play. The political set-up and stability of the U.K. are attractive and hence pull in a lot of international capital (Colson, T. Business Insider, 2017).

The chart below highlights the growing trend of wider investment from Mainland China and Hong Kong.

Source Data : CBRE

In a nutshell, we can see that the Brexit did not deter the Chinese investors from UK property market. The unstoppable foreign investors are actually the real drivers of the UK property. With Chinese outbound real estate investments increasing massively over the years, China is now the the largest cross-border real estate investor in the world. Hence, I believe if the Chinese keep deploying their capital around the UK, this is likely to become the “golden era” of Chinese investments in Britain.

Hence, even post the political uncertainty and economic slowdown, I strongly trust the potential of London as a global financial city and one of the best real estate markets in the world is one of the top destinations on the list of investors when diversifying their portfolios.