China pouring billions into London real estate

The British capital has become a magnet for buyers from the mainland, with investments having risen 1,500 percent since 2010

Chinese investment in London real estate has increased remarkably and will continue in the coming years, industry insiders and companies said.

Greenland Holding Group, a Shanghai-based and State-owned developer, announced its 1.2 billion pounds ($1.97 billion) investment in two overseas development projects in London on Jan 7.

The latest deal shows Chinese companies are entering the capital.s real estate market enthusiastically.

Research released last December by Jones Lang LaSalle Inc, a Chicago-based real estate service and investment company, showed Chinese investment in London real estate has risen more than 1,500 percent since 2010, increasing from 54 million pounds to more than 1 billion pounds at the end of the third quarter of 2013.

This increase means that Chinese investment in London real estate now accounts for more than 50 percent of the total figure for Chinese investment in the rest of Europe, which stood at 1.9 billion pounds in 2013.

The increase in investment has repositioned China as the third-largest non-domestic purchaser in the UK, behind Germany and the US, which invested 1.2 billion pounds and 1.1 billion pounds respectively in other countries.

"Among China.s investment in the UK, real estate has been an obvious hot spot in recent years," said Zhou Xiaoming, minister counselor of the Chinese embassy in the UK.

Offices, retail and industrial units, hotels and mixed developments have proven to be the most attractive asset classes to Chinese buyers.

Deals in 2013 include the sale of the landmark Lloyd.s building to Ping An Insurance (Group) Co of China Ltd for 261 million pounds; a significant investment in development sites such as the Royal Albert Dock, which will be developed by Chinese Advanced Business Park Holdings Group Co Ltd; and the famous Crystal Palace Park, which will be regenerated by Chinese real estate giant Zhongrong Group Co Ltd.

Dalian Wanda Group Corp Ltd, one of China.s largest and most ambitious conglomerates, closed two deals last June, investing 700 million pounds to build a five-star hotel by the River Thames, which runs through London, and buying a 92 percent share of Sunseeker Yachts for 320 million pounds.

It.s reported that China.s sovereign wealth fund, China Investment Corp, has been negotiating with the US private equity group the Blackstone Group LP to take over a commercial park in London. The deal is reportedly worth $1.28 billion.

Overseas gold rush

The microeconomic reason is that China has shown consistent economic growth, escaping the economic downturn felt elsewhere globally. As a result, big Chinese companies have the buying power to go abroad and seek globalized development.

Jon Neale, head of UK research at Jones Lang LaSalle, said China.s economic growth — while slower than over the past decade — is still unparalleled in human history.

The large number of Chinese companies, businesspeople and students who go abroad has also given Chinese real estate developers enough confidence to undertake their own overseas "gold rush".

Most Chinese real estate enterprises that have marched into the overseas market have entered those countries where there are many Chinese companies and residents, such as the US, Canada and the UK.

ABP (China) Holding Group Co Ltd Chairman Xu Weiping said his business park projects are aimed at Chinese and Asian companies.

Zhang Yuliang, chairman and president of Greenland Group, said the investment in a high-end residential housing project in East London.s Canary Wharf will target wealthy Chinese buyers.

Some experts noted that Chinese developers are looking to earn more opportunities and diversify their portfolios beyond the home and Asian markets.

The Chinese government has stepped up a campaign to cool the housing market by ordering the central bank to raise down payment requirements for second mortgages in cities with excessive cost gains.

In such circumstances, London presents an opportunity for a wide variety of Chinese investors, including companies and individuals.

The appreciation of the yuan in recent years has also made overseas assets more affordable.

In addition to these elements, the general consensus of opinion is that London is one of the most popular destinations for foreign real estate investors across the world.

Ed Stansfield, chief property economist at Capital Economics, said: "The property market in London is a very attractive place to invest because of the UK.s reputation of having a sort of stable economy, a pretty stable political system and a high level of legal transparency."

The London property market is moving ahead of the overall UK property market, both upward and downward, and is seen as an indicator of short- to medium-term performance across the entire market.

The average home price in London jumped 15 percent in the fourth quarter of 2013 from the same period in 2012, to 345,186 pounds, according to UK lender Nationwide Building Society.

East London and the Thames docklands are seen as particularly attractive because of their development potential and proximity to the financial centers of the City of London (the main financial center) and Canary Wharf, home to several big companies and modern housing along the River Thames.

"London has always been a sector that attracted a lot of overseas investment, whether it was from the Middle East, US, Canada or from all around Europe. Chinese investment is welcome," said Dean Hodcroft, head of real estate at Ernst & Young LLP.

Chinese investment heading to London is on an unprecedented scale, and experts noted it will have a dramatic effect on the capital city and the rest of the country as the cash cascades through the economy. Not only will it attract billions of pounds into the UK.s financial services industry, it will also create tens of thousands of jobs.

"For us, Chinese investment is important," said Edward Lister, London.s deputy mayor, at the Greenland.s signing ceremony. He said he has made extensive trips to China over the past year with the aim of encouraging more firms to invest in the city.

Hodcroft predicted that the investments by Chinese will be ultimately successful. He added: "It will certainly help the British economy and generate economic activities and create employment, thereby helping the UK economy as a whole."

Most analysts expect the pool of investment from China targeting London real estate to grow significantly in the coming years.

Stansfield noted, "Fundamentally, given the UK government is trying to increase its trade ties with China, and it.s trying to develop London as a center of trading Chinese currency, I think there are lots of reasons you would expect Chinese investment to be sustained and probably even bigger in the next year or so."

"China has got much of a broader spread. I think it is becoming even more understood. We know there is a lot more to come and a lot more diversity," said Stephan Barter, chairman of real estate advisory at KPMG.

"For lots of these people, they are presenting international diversification of their portfolios. They have significant capital. They are becoming bigger and bigger international institutions, which means that they need European businesses, and they need to have assets in Europe."