Monopoly money

London developers woo deep-pocketed Chinese homebuyers

8.02 Augustus Living Room

The best view in London? One Tower Bridge is proving a hit with Chinese buyers

On a balmy evening in London last month, Knight Frank hired a luxury river yacht to throw a party for some of its best clients. About 40 guests were treated to champagne and canapés while the sun set over the River Thames.

As the yacht purred downriver from Chelsea, William Jefferies of local architect Squire & Partners, played tour guide, pointing out the luxury developments along the riverbank ranging from the £8 billion ($12.6 billion) renovation of Battersea Power Station to the River Walk apartments north of Vauxhall Bridge, to One Tower Bridge, near the iconic landmark that straddles the Thames.

It was no coincidence that every guest on board was Chinese – a pool of buyers that London developers are vigorously wooing.

Chinese investors make up a small, but rapidly-growing portion of the buyers of luxury London property. In the 12 months to 31st May 2015, Chinese accounted for 5.6% of prime central London sales (a category covering properties worth over £2 million), up nearly a quarter on the previous year, according to Knight Frank.

“We are seeing more and more properties – both in central London and in areas of regeneration – being targeted at China’s super wealthy,” comments Victoria Gardner, real estate partner at Berwin Leighton Paisner. “The UK’s strong economic performance, political stability, transparent and liquid market has made London one of the principal destinations for real estate investments from China,” she added.

More and more developers are flying to Hong Kong and Shanghai for local roadshows. In April this year Battersea Power Station Development Company set up shop in the Mandarin Oriental Hotel in Hong Kong, to sell the third phase of its 900-residence project to locals and mainland Chinese visitors. Rob Tincknell, CEO of the project, said that although 60% of sales so far had been to Brits, the development is “really resonating with the Chinese buyer”. The recently-launched Phase Three is the work of ‘starchitects’ Norman Foster and Frank Gehry, and features a 20,000 square foot clubhouse and a 5,000 square foot gym.

But the real pull for Chinese buyers, says Tincknell, has been the investment potential. The location is south of the river in Nine Elms where prices are not as high as those in Mayfair, Knightsbridge and Chelsea, he adds. “The opportunity for future growth on the investment, coupled with ‘the ‘mixed use’ nature of the development has meant that we have had significant interest from the Chinese purchaser,” Tincknell comments.

Super-rich Chinese buy more bricks and mortar than most. There are 11,000 ultra high net worth individuals in China (those with assets of $30 million and up, according to Wealth-X) owning an average of 4.7 residences each compared to the global average of 2.7. That means China’s super-wealthy collectively own 51,700 residential properties around the world – and London is now at top of the shopping list. According to Knight Frank, London is the most important city to the global UHNW (ultra high net worth) community, beating New York and Hong Kong into second and third places. Reasons for this include London’s track record as a good investment, its quality education and the relative ease of obtaining second citizenship. Over the past decade, an estimated 76,000 wealthy individuals have left China and around 114,000 wealthy individuals (though not just Chinese) have moved to the UK, according to immigration specialists Fragomen.

As well as the pull factors, there are various drivers. China’s uncomfortable levels of pollution, food safety concerns, and political meddling in the affairs of its wealthiest are obvious issues, but rocketing Asian property values (Hong Kong prices have risen by over 250% in the last decade, according to Savills) have also made some nearby real estate markets less appealing.

James Sullivan, head of sales at developer Berkeley Group, is marketing One Tower Bridge, a 376-luxury apartment development on the South Bank. Around 90% of the units have sold of which 50% have gone to foreign buyers, said Sullivan. The offshore nationalities snapping up these trophy homes are mainly Chinese, followed by Russians, he said.

Their enthusiasm for London property means that they often buy off-plan, sight unseen, and in bulk, said a UK estate agent.

“We have noticed that if a mainland Chinese buyer likes a development they may buy several apartments for rental. We have seen buyers taking 10 in one go,” said the agent.

At the other side of London in prestigious Mayfair, one of the city’s most expensive new developments has not failed to catch the attention of wealthy Chinese. Clarges Mayfair is an ultra-luxury mixed-use development overlooking Green Park. Due for completion in two years, 22 of the 34 apartments have already sold for an average £12 million each, breaking price records for the area.

“We have had a high level of interest from Chinese buyers,” said James Taylor, project director at British Land, the developer behind Clarges Mayfair.

He added that the development ticked many of the boxes on the Chinese checklist. “Proximity to Royalty, with views of Buckingham Palace and being near to St James’s Palace and other heritage buildings seems to be a particular draw for Chinese buyers. And they love the high-end brand names found on Bond Street as well as the independent boutiques of St James’s and the Burlington Arcade.”

Nicholas Holt, head of Asia research at Knight Frank, added that mainland Chinese buyers also tend to prefer “the highest quality new-build property” with strong investment potential. Good security and access to high quality educational institutions are also factors driving investment, he added. “Seeking out the best education for their children abroad is of primary importance to China’s wealthy and 67% expect to send their children overseas for a university education.”

And as China’s first generation rich transfers its wealth to its heirs, more money will find its way into property. According to Wealth-X, $930 billion of Asian wealth will be inherited by the next generation within the coming decade. Within the same timeframe an estimated 15,800 ultra-wealthy individuals will have taken second citizenship (and with them their $4.1 trillion of collective assets).

All of these factors point to a generation of Chinese millennials being even more enamoured with London property. One of the guests aboard Knight Frank’s cruise was a girl in her early thirties, who had lived and studied in London for several years and had already bought several apartments in the city.

“I am running a competition with my father. He is also buying property for investment in China,” she explained. “We are betting on who can make the highest return. I think I will win!”

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