Date
20 November 2017
Led by major developers and financial institutions, Chinese corporates are snapping up prime office properties in London. Key financial districts like Canary Wharf and the City of London are their favored locations.
Led by major developers and financial institutions, Chinese corporates are snapping up prime office properties in London. Key financial districts like Canary Wharf and the City of London are their favored locations.

Chinese firms can’t get enough of London properties

London properties were 12 percent more expensive in 2013 than a year ago, but that didn’t prevent transactions of homes costing more than £1 million (US$1.71 million) soaring 20 percent in the city, realty consulting firm Savills notes in a report.

The main reason for the property boom was international buyers, as they accounted for 61 percent of the new-home purchases there last year.

Just like cities in the United States, London is among the most favored destinations when cash-rich Chinese investors go offshore. But unlike in the US where individual buyers make up the bulk of deals, corporate investors have taken the leading role in Chinese investment in the British capital.

British media was once agog with stories of how Li Ka-shing was buying up virtually the entire UK public utility business as the Hong Kong tycoon mounted an all-in investment spree in Europe. Now, mainland investors are getting the same “wow” treatment. In the past 12 months, Chinese investors splurged at least £3 billion (31.8 billion yuan) snapping up prime townhouses and grand office towers in London, Southern Metropolis Daily reports.

Premier Li Keqiang’s visit to the UK last month has obviously sparked a fresh round of big outlays from China. Among the big deals recently was one from China Life Insurance (02628.HK, LFC.US, 601628.CN), which bought a 70 percent stake in a 30-storey grade A office tower in Canary Wharf — the bustling central business district that houses a number of multinationals including HSBC — for £795 million.

Just five days after the deal, China Construction Bank (00939.HK, 601939.CN), which has been picked as the London renminbi clearing house, bought a tower in the City of London, another major CBD, for £111 million. The Chinese lender will use the tower as its European headquarters. 

Earlier this year, Shanghai-based realty conglomerate Greenland, known for its bold overseas ventures in recent years, made its largest such bet in London with a planned £1.2 billion residential high-rise near Canary Wharf.

The “go London” trend was ushered in by Wanda Group last June with a £700 million luxury hotel development near the Thames waterfront.

Still, Chinese buyers drew little attention back then — after all London always teems with global investors. Yet, just one month later, the £260 million landmark deal by Shenzhen-based insurer Ping An for Lloyd’s building, one of the most iconic and radical Bowellism towers in the City of London, made headlines in the country and realty brokers and analysts began to pay serious heed to the army of corporate investors from the east.

A slew of new projects in recent years have increased supply notably and weighed on London’s office market. The 306-meter Shard for instance, the city’s tallest skyscraper, finds itself in an embarrassing spot as it has many levels lying vacant more than two years after completion.

Now, one should bear in mind that Chinese firms acquire office towers mainly for their own use, so the excess supply may actually help them secure better deals.

Individual Chinese buyers are also flocking to London, attracted by a satisfactory return averaging 4.6 percent, according to Savills. A forecast shortfall of 20,000 homes in the next five to six years is also conducive to value increment.

The picture looks perfect except for a recent amendment to the income tax act that charge overseas investors a 30 percent levy if the property, either an office or a home, is sold within five years from the original transaction.

– Contact the writer at [email protected]

RC

EJ Insight writer

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