When the value of the pound depreciated by 10% in the immediate aftermath of the UK’s vote to leave the European Union, it shouldn’t have come as a surprise that foreign investors would continue their love affair with investment in prime London property.
Qatar has invested around £30bn into London, making the country by far the most dominant force when it comes to foreign purchases. Qatar have invested in key London attractions such as the Olympic village, The Shard, Chelsea Barracks and the Canary Wharf Group investments. As a result, Qatar Holding has become the largest property owner in the Capital ahead of even the City of London Corporation and Transport for London.
The huge increase in investment in 2017 however, up 18.5% from 2016, has been driven by a new type of opportunistic foreign investor attracted to the favourable prices because of the fall of the value of the pound.
Additionally, London property remains highly regarded as an asset class with a reliably high yield, particularly with interest rates as low as they are globally.
Central and inner London is attracting nearly all the investment because it is in the prime UK market where prices have been most affected. The first six months of 2017 saw £8.8bn worth of investment pour into this market with over half of all deals being from Asian investors.
The purchase of the Leadenhall Building for £1.15bn by Hong Kong investor CC Land was the Marquee purchase of the period and was the biggest ever Chinese purchase of UK real estate. The deal followed quickly after the investment vehicle’s first London purchase of One Kingdom Street for £292m.
The development of thousands of flats in Greenwich Peninsula was also funded by an UHNW individual from China whose project is expected to take over two decades to complete. The development of Battersea Power Station is being funded by a Malaysian equity fund which is investing in infrastructure, commercial properties and community services as well as the housing on the site.
Of the seven major deals completed, worth more than £200m in the City of London, German investors were responsible for four. This might prove to be the most interesting development of all, as a Knight Frank study revealed that only 16.5% of buyers in the prime London market had previously been from EU countries, representing an increase in investment from Europe after the Brexit vote.
However, it is the increase in Asian investment which is really driving this growth. The increasing global vision of Chinese investors resulted in around £11bn worth of international investment in 2016 and could well be higher by the end of 2017. They have contributed over half of the investment in the UK this year, up from 25% in 2016.
Capital controls from China’s State Council may hinder this growth though as they have signed off regulations aimed at targeting “irrational” overseas spending. It’s unclear to what extent this will affect purchases of London property, with investment in “sports, leisure and clubs” being singled out by the Zhou Xiaochuan of the People’s Bank of China, as particularly “over the top”.
This will come as less of a surprise to football fans in the midlands, as all four major clubs in the region – Aston Villa, Birmingham City, Wolverhampton and West Bromwich Albion – were purchased in 2015/16 by Chinese investors. Given the important role overseas investors play in London, both by purchasing residential property and in funding new developments, the potential loss of this investment would be significant.
Londoners are only unable to access around 6% of private new builds because of foreign buyers, according to research conducted by LSE in May this year. Yet, this cost is more than offset by the positive impact pre-sales have on both construction volume and speed. This willingness to assume risk and buy without seeing a project is unique to foreign investors, not least because domestic purchasers are restrained by mortgage limitations and an unwillingness to wait years for completion.
Continuing to attract this investment from abroad should therefore remain a key focus for UK developers going into 2018.