Chinese Investment could cause an Increase in House Prices
Emotions have been high and housing prices have been low since the Brexit vote and Chinese investors that are emotionally steady and financially sound have found a new investment opportunity in the post-Brexit British housing market.
There has always been an interest in the UK property market from international investors looking to buy property in Europe but since the Brexit vote, the property enquiries from Chinese buyers has increased a whopping 40% in the second half of 2016 compared to prior years. As signs show that Chinese investors are ready to purchase UK commercial and residential properties, spectators are starting to wonder what this increased demand could mean for supply and subsequently – prices.
Why Are Chinese Investors in the UK?
Before the Brexit vote, Chinese investment in both residential and commercial properties was decreasing due to firstly, the rising housing prices but also the uncertainty surrounding the impending Brexit vote.Fast-forward to post-Brexit vote and the sterling is trading at a 30-year low against the dollar and yuan, the bargain-hunters interest was reignited in the often unattainable and unaffordable UK property market.
Over the past year, 23% of London house purchases have been made by people from the Asia-Pacific region, making them one of the biggest group of international buyers, along with Middle Easterners and North Africans. This is largely due to the weakened sterling against Chinese yuan. Since the Brexit vote, the price of property has become 10% cheaper when purchasing with the yuan, and for the Chinese interested in the UK, this is not only a bargain – but an opportunity to invest in an economy they believe in for the long-haul.
Good Return on Investment
Many Chinese investments in the UK. waited until the Brexit vote outcome was known and after the vote, the new-buyer interests from Asia dropped to its lowest level in over 5 years for a short period of time because of the devalued sterling and uncertainty surrounding a new government.
Chinese investors often look for an investment that is not just good right now but for generations to come, they have proceeded cautiously but still believe in the UK economy and stability – and their commitment is paying off with lower housing prices and higher incentives.
The Bank of England proposed a new monetary stimulus plan which has a borrowing benchmark interest rate still at a record low of 0.25%. This low borrowing rate has captured the intrigue of international house buyers, especially when they consider that the ROI in London in the 6 years between 2010 and 2016 has been between 15 and 20%.
However, they’re not just interested in a good bargain and the potential to make some money down the line but the UK is also attractive because it provides a good social and educational system. Chinese often purchase property in countries where they can see their children being educated. Furthermore, it’s an international financial hub and seen as a safe-place to diverse wealth and has been showing signs of stability under the new government post-Brexit.
Where are Investors Buying?
Although almost 75% of origins of buyers in the London market are from Europe or the UK, 5% of purchasers in the London market are from China but Chinese investors aren’t just in it for the London locations, they believe in the UK development in its entirety.
London makes up more than 50% of properties bought by Chinese buyers but the Chinese are also intent on buying property in Northern cities because of the recent investment into the “Northern Powerhouse” by both the UK government and Chinese constructions groups. Chinese investors see the potential in cities including Manchester, Nottingham, Cheshire and more.
What Does this Mean for the UK Housing Market?
Chinese investors have the ability to really affect a housing market. It’s been argued in other countries such as Australia and the US where there is a high demand from Chinese investors that there is a significant impact on the local housing and commercial property markets. Investment has particularly increased in recent years from the countries such as the Asian market as they feel that they are being priced out of their own housing markets, especially first-time buyers.
For others – this is an economic opportunity. As the UK continues to sever its close ties with Europe, it’s open to new relationships. The UK and Chinese government have already started working together to in many areas, building a mutually beneficial economic relationship.