When the British voted to leave the European Union last June, many thought that would be the end of London as a center for global property investment. Banks and companies would leave the city and the economy would go into long-term decline.
But the opposite has happened. Hong Kong and Chinese investors, both corporate and private, are piling into the market.
Last week Knight Dragon, a private company owned by Henry Cheng Kar-shun, chairman of New World Development, announced an investment of one billion pounds in Peninsula Place in the Greenwich district; it will include 800 flats, office space and 500 hotel rooms.
Earlier in May, HK-listed CC Land Holdings said it had paid 1.135 billion pounds for the tallest skyscraper in the City of London, 122 Leadenhall Street – known as the ‘cheesegrater’ – which has 46 floors, 56,600 square meters of office space and annual rental income, if fully let, of about 400 million pounds.
Hong Kong institutional and private investors own an astonishing 12 percent of retail space in the West End, London’s most up-market commercial district.
There are several factors behind the rush. One is the depreciation of sterling, which has lost 10-15 percent of its value against the US dollar since the Brexit vote.
A second reason is the pro-business government of Theresa May. Her Conservative Party is expected to score a landslide victory in the general election to be held on June 7. The party is strongly in favor of foreign investment, even more so after leaving the EU and access to the single European market.
Thirdly, despite Brexit, in 2016 the UK economy grew at the second fastest rate among the G7 countries.
Fourthly, investors see London as maintaining its role as one of the world’s main tourist and retail destinations and magnet for property investment from around the world, including Arabs, Russians and Chinese.
Fifthly, Britain has a sophisticated legal system with comprehensive protection for property owners.
The city currently attracts 200 million visitors a year; last year more than 40 new stores opened in the West End district. With the opening of a new subway line, the Elizabeth, in late 2018, the tourist industry expects to attract 260 million to the West End by 2020.
London has also kept its glitter for mainland Chinese investors. Real-estate firm Jones Lang LaSalle said this month that London had attracted about 16 percent of overall mainland outbound property investment, second only to New York, which took 18 percent.
“Investing overseas is a strategic move for most mainland investors and we expect few long-term structural changes,” said Stuart Crow, JLL’s head of Asia Pacific Capital Markets. “The trend of mainland capital being sunk into real estate has not abated and will further gather momentum due to the mainland’s enormous capital base.”
This flood of foreign capital has had dire consequences for ordinary Londoners, pushing up prices and leaving thousands of units empty. The owners keep them as investments and wait for prices to rise. A middle class couple with two salaries cannot afford an apartment in the city; they can only buy in the suburbs and face a long daily commute.
This could become a major political issue, with restrictions potentially being imposed on foreign purchases. But this will not happen with a Conservative government, especially in the post-Brexit environment; it needs non-EU investors to compensate for the loss of EU growth.
The investors are not only corporations but also individuals. Every week Hong Kong newspapers, Chinese and English, carry advertisements for London properties aimed at the private investor.
Last weekend, for example, an advertisement in one paper offered one-bedroom apartments from 735,000 pounds in Conquest Tower, Blackfriars Circus in the southeast of the city. They have a lease of 999 years and are due for completion in the spring and summer of next year.
Private citizens may have different objectives compared to corporates. They buy for their children to use as students or for themselves on business or holiday trips.
For Hong Kong people, London is one of the foreign cities with which they are most familiar, thanks to their education, television dramas, films and friends. This familiarity makes them more comfortable with investing, since they know what they are buying.
So the Poles, Czechs and Lithuanians may be leaving London – but the city can still count on its friends in Hong Kong.
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