As politicians right across the UK continue to bicker and argue about Brexit and the U.K.’s place in the worldwide economy, Chinese investors are taking a very different tack. There is emerging evidence to suggest that Chinese investors are now switching from the Chinese property market to London. This move is happening despite the fact that the London market seems on the surface to have suffered more than most in light of the Brexit vote. So is this a new trend or short-term adjustment?
Chinese property market
It is no secret that the Chinese property market is heavily manipulated by the Chinese government and has been for some time. Despite the fact that China is looking to attract more entrepreneurs and capitalists there is still an underlying degree of control by the authorities. However, this is a market which despite short-term volatility is now at a 25 year high.
The short to medium term outlook for the Chinese economy is mixed to say the least with many observers now reluctant to take official economic data at face value. There has been so much manipulation of various property hotspots across China that the performance of the main markets compared to peripheral property markets is wider than ever before. As a consequence, can you blame investors for looking to switch to other markets?
Why the London property market?
We all know that London has been a major attraction for overseas investors looking for quality property with long-term capital growth potential. Along the way there have been concerns regarding money-laundering and underlying ownership of properties but London still remains one of the worldwide property market hotspots. Even though domestic interest has slowed a little since Brexit the situation for overseas investors is very different!
When you take into account the quality of London properties together with a fall in sterling of more than 20% since the Brexit vote, London just got a whole lot cheaper for overseas investors. So without any real movement in London property prices many overseas investors have received a 20% bonus. There may be some short to medium term risks regarding further currency devaluation but many believe the UK is well-positioned for the longer term to benefit from growing trade opportunities.
UK commercial property
Again, as domestic investors take a step back from UK commercial property there are signs that Chinese investors will take up the slack and more. Data covering the first 10 months of this year suggests that 2016 will show more growth in Chinese investment in the UK commercial property market. Unfortunately for UK investors many of their overseas counterparts seem to take a more long-term position when looking at markets. There will be volatility in the short to medium term, there will be overreaction in both directions but if the UK economy does manage to stabilise and grow in the longer term then commercial property should perform well.
Conclusion
When you take into account the 25 year high for the Chinese property market, sterling’s recent devaluation and the long-term prospects for the UK property market it is no surprise to see some Chinese investors switching to London. Is this the start of a long-term trend? Will UK markets need to adapt to greater interest from overseas investors?