Chinese buyers increase focus on London property market

China continues to flood the London Property market with cash due to the weak Sterling since Brexit.  London’s success as a business location saw GBP 9.3 billion of overseas money invested in Central London offices in 2016.

Chinese buyers spent more than three billion pounds ($3.75 billion) on property in central London last year, more modest than UK investors but more generous than those from the US or Europe, real estate consultancy firm Jones Lang LaSalle (JLL) said.

The yuan appreciated by 12 percent against the British pound since June, when the U.K. voted to leave the European Union, the Wall Street Journal reported. That, along with expected restrictions on outbound capital from China, has investors flocking to London.

An office building located in Paddington, London, was sold to CC Land Holdings Ltd, backed by Hong Kong property tycoon Cheung Chung Kiu, for £292 million this year. And in January, a subsidiary of Hong Kong conglomerate Emperor Group bought a building with offices and shops in London’s Soho for £260 million.

As many investors balk because of the uncertainty over the impact of Brexit, high prices after a multi-year property boom and the returns on London property that have reached near record lows, Chinese buyers see earnings optimism.

In the leasing market, the tech firms have shrugged off Brexit and are taking space. In the investment market, overseas investors are showing a strong appetite for London offices. Appetite for London commercial property from China and Hong Kong-based investors remains strong. Indeed, the currency advantage that resulted from the outcome of the referendum has made the UK in general even more attractive to these buyers,» said Nicholas Holt, Head of Research, Knight Frank Asia-Pacific.

While Beijing says it supports legitimate overseas investment, regulators have warned they would pay close attention to “irrational” investment in property, entertainment, sports and other sectors.

Those involved in helping Chinese invest overseas say it is now much tougher to get money out of the country.

“All outbound property deals are heavily affected by the capital restrictions. We have changed our funding channels, to target investors who already have funds offshore,” said an investment manager at China Orient Summit Capital, which operates property investment funds in Shanghai.

Chinese banks on Jan. 1 also began requiring customers purchasing foreign currency to specify how they will use the funds, while reminding them individuals are not allowed to invest in overseas property under the capital account.

Efforts to prop up the yuan currency led China’s foreign exchange reserves to fall below the $3 trillion level in January for the first time in nearly six years. But the drop was less than expected, suggesting tighter controls are slowing capital flight.

DMZ thinks it’s too early to tell if capital controls will impact sales in the long term, as many buyers have already moved money abroad.

“The so-called ‘mainlanders’ who bought these high-value properties have had their money transferred to Hong Kong one to two years ago,” said Vincent Cheung, executive director, valuation and advisory, at Colliers International.  We do expect to see more forceful policing of capital controls but outflows will persist, investors will always seek to diversify their portfolio.  London, will always be seen as a great source of investment, especially since post Brexit currency falls.

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