London Property Market Prediction: Where and why are Chinese buyers buying residential properties in London in the next 12 months?

Synopsis 

China is already the world’s largest outbound real estate investor, and its appetite for overseas property is anticipated to only grow in the future.

According to a report by EY, the number of Chinese households in the high-income category that can afford to purchase international real estate, including London, is likely to increase by 50% by 2025.

This thought leadership paper will examine where and why these Chinese buyers are buying in London in the next 12 months.  

In general, what is the profile of Chinese property buyers and investors in London that you have come across in your field? What are they looking for when buying residential properties in London?

The Chinese buyers we have dealt with range from owner-occupiers, buy-to-let investors, property developers to simply parents purchasing properties for their children studying in London. 

The profile of these Chinese buyers and investors varies and includes high-net-worth and ultra-high-net worth individuals as well as family offices.  

From our experience, Chinese buyers and investors favour the London residential market for a number of reasons including but not limited to the following:

• London continues to be an important global financial centre and one of the World’s leading wealth hubs. It’s also consistently ranked as one of the best cities in the World to live in;
• London (and the UK more generally) has a world-class education system with an abundance of prestigious schools and universities;
• London is seen as stable residential market for investment purposes with good prospects for rental and capital growth over a sustained investment period;
• The legal system supporting residential property transactions in London provides certainty and stability and therefore confidence to overseas investors;
• The level of taxation that a Chinese buyer and investor will be exposed to is competitive when comparing other jurisdictions across the World; and
• The continued relative strength of the US Dollar against Sterling continues to generate interest for overseas investors where some or all of their income or portfolio of assets are in or tied to the US Dollar. 

In our experience, Chinese buyers and investors typically hold properties for the medium to long term (and do not tend to acquire properties with the intention of reselling (or ‘flipping’) within a short period of time. As such, factors that may be viewed as short-term barriers to investment such as political uncertainty or interest rate fluctuations are much less likely to be of a material concern when viewing investment decisions over a life-cycle of five or more years. 

Areas of London in Zone 4, but with access to central London within 15 minutes, are becoming more popular for residential developments. Wembley Park in North-West London is notably one of the UK’s largest urban regeneration schemes in recent years. Have you seen Chinese buyers purchasing properties in Greater London in recent years; if so, where and why are they buying?

We have seen an increase in Chinese buyers and investors acquiring both new-build and second-hand properties in both Zone 4 but also across Greater London more widely, particularly those from Hong Kong who have decided to relocate to the UK over the last few years.

The attraction of Zone 4 but also other parts of Greater London is wide-ranging and includes the fact that these parts of London are often more affordable and present the opportunity to acquire a house with more space / outside space compared to apartment living which is likely to be more typical of central or prime areas of London.

Other factors may include the size of Chinese communities in certain areas and the availability of good schools. 

Finally, Chinese buyers and investors are likely to be attracted to areas being regenerated with significant development and investment such as Wembley Park because there may be opportunities for enhanced rental and capital value returns arising from the consequential improvements to these local areas through better accommodation options, more civic amenities and up-grades to transportation links.

Education has been always a big driver for Chinese property buyers in London. What do you think? Is it still important now and how do you see that differing over the next few years?

Education is traditionally seen as a vital factor by Chinese families for their children to have a prosperous future and this unlikely to change. As London is home to many prestigious schools and universities, this plays an influential role in drawing investors, particularly those from China and Asia more widely, who often purchase properties with the two-fold purpose of securing a valuable asset and providing a home for their children whilst undergoing their studies.  

Just as the British education system is considered reputable in China for many, so is the London property market, which is seen as a resilient and secure investment jurisdiction. Good rental yields and the upward trend in capital values over the medium to long-term further attract investment from Chinese buyers and investors. 

In an increasingly competitive international environment, the UK education system is still held in high regard globally. As such, those with a secondary and/or tertiary education from the UK are often at a competitive advantage with potential employers compared to many other jurisdictions. As such, we do not anticipate a reduction in demand for the UK education system. In fact the number of instructions from clients seeking to acquire property in London and other parts of the UK demonstrates that, if anything, the reverse is more likely to be the case. 

In your expertise, what should Chinese buyers and investors be aware of when navigating the London residential property market?

Whether Chinese buyers and investors are either new to acquiring residential property in London or are seasoned veterans, they should all be aware of the following:

• Purchasing UK properties is subject to the principle of ‘caveat emptor’, which means ‘buyers beware’. It is therefore a buyer’s responsibility to investigate and be satisfied in all respects about the property they are intending to buy before proceeding to exchange of contracts. A buyer’s solicitor will assist with carrying out due diligence on the legal title of the property being purchased, however the buyer should also consider instructing a surveyor to carry out a survey of the physical condition of the property;
• The UK has strict anti-money laundering (AML) regulations. Buyers should be prepared to work together with their solicitor to satisfy the UK AML regulations and provide sufficient documentary evidence to prove their source of wealth and funds. Considering AML and providing required information can often help expedite transactions;
• Buyers intending to let properties following completion should note that some councils have implemented a selective licensing scheme. This scheme requires private landlords to obtain a licence before they are able to let the property to tenants. These buyers may also need to ensure that their properties meet certain energy performance standards (particularly in relation to second-hand properties which tend to be older and more susceptible to a lower energy rating); and
• Buyers should instruct a solicitor who specialises in residential property and has experience with dealing with similar properties. Charles Russell Speechlys LLP has a specialist UK residential property team across both Hong Kong and Singapore, with extensive experience of dealing with a wide range of UK residential property matters as well as the ability to advise clients in both English and Chinese.

This article was published with the permission of 11K Consulting.