Overseas property investments are again increasing in popularity as China’s stock market swings drive retail investors in Greater China to look for more stable investment alternatives. The Shanghai Composite Index recently fell approximately 30% over three weeks as central government officials tried to halt the slide in values.
The United Kingdom, in particular London, has historically seen a lot of investment from China. In 2014 alone Chinese buyers splashed out US$3.32 billion on real estate in the UK capital, according to UK-based property consultant Savills. Today, high net worth Chinese investors are diversifying away from overpriced London properties into second-tier cities in search of better values.
They are supported by the UK government’s effort to boost economic growth in stand-out second-tier cities such as Birmingham. As a result, the smart money from Asia is looking to invest in the early stages of select property development cycles there. But they can only do so armed with local market knowledge and the ability to seize the right opportunity, which remain key to investment success.
Asian developers who have that in-depth knowledge are being engaged by Asian investors to manage their UK property investments. Such developers bring an understanding of the Asian culture and customs as well as local market knowledge to the task of finding the right opportunities for their Asian investors.
That is the kind of partner Chinese investors need to be certain of getting their investments right in overseas markets such as the UK. China’s qualified domestic individual investor (QDII2) scheme will make this more important than ever, as a select group of individuals could have the option of investing up to half of the total value of their assets in international financial asset classes such as real estate.
What do Chinese investors require when investing into a market such as the UK? There are tax and legal implications of which they need to be aware and have structured appropriately. They need to ensure that the right opportunity is sourced that reflects their individual risk profiles and return requirements; and that they have the right partner to source these opportunities, manage them appropriately from inception to completion as well as providing regular updates and information at each stage of the project.
The latest example of the diversification away from London is The Franklin, a modern complex of 79 apartments located in Birmingham. Knight Frank has launched sales of The Franklin in Hong Kong, which is being developed by British local developer Court Collaboration in partnership with Hong Kong-based developer Headland Developments on behalf of its Asian investors.
As more investors from Greater China turn to the UK for stable investment alternatives, they will need trustworthy developers with whom they can work to lower their risk. Asian developers with a proven track record in construction, development and funds management, who in addition have a strong network of local development partners, will become Chinese investors’ go-to sources for overseas investment, which we broadly term cross border investment with local execution.