Chinese Bet on London Real Estate
By JULIA WERDIGIER and BETTINA WASSENER
Published: September 17, 2010
Recommend
Twitter
Sign In to E-Mail
Print
Single Page
Reprints
Share
Close
LinkedinDiggMixxMySpaceYahoo! BuzzPermalink. LONDON — Naomi Minegishi, 21, a Japanese woman who lived in China for 10 years, recently joined the London property broker Felicity J. Lord. Fluent in Mandarin, Ms. Minegishi was hired not for her experience in real estate sales — she is studying management at a London university — but for her language ability.
With her help, the agency recently sold four three-bedroom apartments in a new development for £320,000, or about $500,000, each to a different Chinese buyer and solely on the basis of photos and floor plans. The new construction is close to the Olympic stadium, and the investors are betting that real estate prices will rise before the Games in 2012.
Chinese clients, Ms. Minegishi said, are a dream. “They are wealthy, they pay in cash, and they’re looking for good value.”
The London property market might have shown signs of cooling recently, but investors from mainland China and Hong Kong are busier than ever — bidding, for example, on luxury apartments in the fashionable Knightsbridge district down the road from Harrods as well as new homes close to the Canary Wharf financial district.
In some parts of London, mainland Chinese investors have already replaced those from Russia and the Middle East as the busiest real estate buyers with deep pockets, looking for trophy assets and pushing up prices, some brokers say.
Buyers from mainland China are a tiny but growing proportion of purchasers of high-end real estate in London — accounting for 5 percent of all purchases by foreigners of London properties valued from £500,000 to £1 million this year, compared with 0.5 percent a year earlier, according to Savills, a real estate agency. Europeans still make up the largest proportion, Savills says, though it does not break down buyers by country.
There were 115,000 Chinese living in London in 2007, compared with 80,000 six years earlier, the most recent figures from the British government showed.
Unlike clients from Russia and the Middle East, however, few Chinese buyers are looking for London apartments to live in themselves. A majority of them are seeking investments in a real estate market they perceive as more stable than their own and with a plan to receive steady rental income for years, Ms. Minegishi said.
For wealthy Asians, fears that governments may impose more constraints on red-hot local property markets have made investments abroad more attractive. Rapid growth and easy credit caused real estate prices in many parts of Asia to rise sharply late last year: Hong Kong luxury home prices have jumped 45 percent since 2009, according to Savills.
Last month, to prevent prices from overheating, Singapore raised the down payment required for many home purchases. The step followed similar measures in mainland China and Hong Kong this year. By contrast, prices dropped more than 10 percent across Britain after Lehman Brothers collapsed in 2008, although the prices of exclusive properties in London held up better than those in the rest of the country, helped by foreign buyers. Prices of high-end London real estate rose 8.75 percent in 2009 compared with a drop of 2.25 percent in the southwest of Britain, according to Savills.
Not surprisingly, the property industry in Britain is retooling to meet the Chinese demand. Brokers are hiring Mandarin speakers like Ms. Minegishi, as well as Cantonese speakers to cater to people from Hong Kong. Savills organized a seminar in Shanghai in July to teach 100 clients how to buy real estate in London, and a rival agency, Hamptons International, opened an office in Hong Kong with four local employees about two months ago.
Some London developers, meanwhile, are omitting the number four in new buildings because four is considered unlucky in Chinese culture. “Most developers in London are including China in their marketing efforts,” said Matthew Tack, a director at Hamptons in London. “They’d be silly not to.”
The increase in transactions highlights a gradual shift in wealth to Asia, including mainland China. Free of the debt levels that are still haunting Western households and governments, most of Asia began to recover rapidly from the global economic downturn last year.
And although a large majority of Asians still struggle to make ends meet, the booming growth has catapulted many into the ranks of the wealthy and superwealthy. In mainland China alone, the number of people with assets worth more than 10 million renminbi, or $1.5 million, rose 6.1 percent, to 875,000, in a year, according to the Hurun Research Institute in Shanghai.
Chinese citizens need to get approval from their local authorities to invest more than the equivalent of $50,000 a year overseas. But many wealthy Chinese work around the restrictions with the help of trust funds and foreign bank accounts, real estate brokers say.
Because of those rules, most of the Chinese buyers pay cash to minimize the paper trail. None of the London brokers interviewed for this article were willing to disclose the identities of buyers or introduce them to a reporter.
Although Chinese are becoming more active in many overseas markets, including the United States and Continental Europe, London remains highly popular, brokers say, for a variety of reasons. For one, Britain has almost no restrictions on whether foreigners can own real estate and a fairly fluid rental market, which is attractive to buyers seeking income from their properties.
Cultural issues, especially the Chinese emphasis on education, also favor the acquisition of London addresses.
Education is generally the largest budget item in a Chinese household, and many families hope to send their children to top universities in Britain, which tend to admit more foreign students than top universities in the United States, said Jeff Cao, head of the China sector for Think London, a government-supported agency that helps attract foreign investment to the city. The number of Chinese students at London universities rose 9 percent, to 948, last year from 867 a year earlier, according to the Universities and Colleges Admissions Service.
For Chinese buyers in London, Mr. Cao said, the idea is to find apartments big enough to provide the children with more comfortable accommodation than existing student dormitories and that also have spare rooms that can be rented out. Once the children graduate, their parents rent out the whole apartment.
One mainland Chinese investor who owns real estate in London and elsewhere said his London investments were his most lucrative. “I bought a flat for my daughter’s use when she was studying in London and other flats I have rented out or sold,” Mr. Lai, the owner, who declined to give his first name to protect his privacy, wrote in an e-mail. “The U.K. traditionally has a very good legal structure with good law and order,” he wrote. “That, together with the city’s financial institutions and the British people’s love for owning their own homes, makes the property market extremely attractive.”
Joseph Lau, a Hong Kong billionaire, recently spent £33 million on a six-floor mansion in Eaton Square in London, an address he shares with the Russian oligarch Roman Abramovich. Mr. Lau’s son, Lau Ming-wai, studied at the London School of Economics and then worked for Goldman Sachs in London.
Real estate brokers who cater to Chinese customers say it is unclear whether and when the appetite from China will start to ebb, but there is no indication yet that it has.
Nick Vestey, a sales executive at the Knight Frank brokerage firm in Knightsbridge, said one Chinese client had spent more than £17 million on a four-story, five-bedroom house not far from Buckingham Palace that included a gym, a passenger elevator and five vaults.
Another client “flew in from China for a day,” Mr. Vestey said. “We picked her up from the airport and showed her eight properties in four hours on a Sunday afternoon.”
