With the sterling plumbing record lows, Asian investors have been jumping at the chance to snap up a bargain
Since the British electorate’s surprise decision on 23 June 2016 to break away from the European Union – taking its “Brexit” – one of the few certainties in British politics has been uncertainty.
Meanwhile, the incendiary subject of immigration – which many pro-Brexit voters hope will soon be more tightly controlled – is rarely absent from the news. Racist incidents are on the rise since the vote, and many people claim that post-Brexit Britain is now less welcoming to foreigners. So amid all the turmoil, uncertainty and apparent hostility to foreigners, who would want to dive into British property right now?
Foreigners – that’s who. That’s largely because the sterling has plummeted – hitting its lowest point against the dollar for 30 years. Indeed, the British pound joined the likes of the Venezuelan Bolivar and Nigerian Naira in the table of the world’s worst-performing currencies of 2016.
According to Bernie Morris, president for the UK, Europe and the Middle East for leading Chinese international property site, Juwai.com, Asian investors wasted no time after the Brexit vote.
“With Sterling down, the number of Chinese buyer enquiries made in each of the four weeks after the vote was 30-40 percent higher than in an average week in the year to-date,” he says. “The week of 4 July was the biggest of the year so far for Chinese UK buying inquiries.”
There’s no shortage of irony in the fact that Brexit – which many of its proponents saw as being an opportunity “to take our country back” – has inadvertently made British real estate irresistibly cheap to foreign property investors, whose dollars, yuan and roubles can more easily trump the British pound.
And it’s not just the sliding Sterling that’s caught the eye of Asian investors, according to Morris. “Many thought they might get a bargain in a distressed market. For example, they were looking for a cut-price, off-plan apartment that a previous buyer had forfeited because of the vote, after having put down a deposit.”
London, of course, will always be a major draw. As Julian Walker, director at InternationalPropertyForSale.com, explains: “For pure investors, London’s buy-to-let market remains one of the strongest in the UK, with upward pressure on rental demand and the value of rental homes. In terms of price, London suits a wide range of budgets – average flat prices across the city are USD550,633, ranging from an average of USD1.75 million in Kensington and Chelsea to USD259,700 in Barking and Dagenham.”
However, according to Juwai, the primary driver – prompting 54.6 percent of its inquiries in London – is education. Outside the capital, that proportion soars. Education is the main factor in 72 percent of Juwai’s inquiries about properties in Birmingham, while, in Scotland, that proportion hits 92 percent.
Ironically, that is down to Asian buyers’ education – or lack of it – about the wider UK market. “Chinese are relatively less knowledgeable about the markets outside of London, so you see a higher proportion of buyers that are primarily motivated by education, rather than just investment,” says Morris. “This means property markets are directly linked to the degree to which local universities attract overseas students.”
One major market bucks this trend, though. According to Juwai, 71.6 percent of inquiries about properties in Manchester – the site’s second most popular UK city after London – are motivated by investment, not education.
The city is a cornerstone of the UK Government’s “Northern Powerhouse” initiative, which involves a GBP13 billion (USD16 billion) investment in improving transport infrastructure in the north of England.
“Manchester is the second biggest economy in the UK and is a good hedge to any investments in London,” says Rob Weaver, director of investments for residential crowd funding platform Property Partner. “There’s been significant investment from both the private and public sector, which is expected to have a positive impact on both house prices and rents. The city is served by a large transport infrastructure including the largest airport in the UK (outside London) and a network of motorways.”
Across Manchester, new buildings are springing up. Beijing Construction Engineering Group (BCEG) has invested GBP12 million (USD14.7 million) for a 20 percent share in the GBP800 million (USD980 million) Airport City development and is also investing in St Michael’s, a mixed-use city-centre scheme,” notes Rhys Whalley, executive director of the Manchester-China Forum, a business-led initiative aimed at enhancing the Manchester’s connections with China.
BCEG is also the main contractor on the USD856 million Middlewood Locks project, involving 2,000 new waterside homes and 750,000 square feet of commercial development space. Also significant is Hong Kong property group Peterson Group’s USD367 million Great Northern Warehouse project, which will create a 780,000-square-foot district with offices, shops, restaurants, a cinema and apartments created in the city centre.
Dominating Manchester’s property sector – and by 2018 its skyline – is the USD245m X1 Media City project. The joint venture by X1 Developments and Knight Knox International will see four skyscrapers with 1,100 apartments plus 22,700 square foot of commercial space spring up at Salford Quays.
In fact those wanting to rent in central Manchester have to be quick off the mark. Local estate agents have reported that properties have been let within an hour of being advertised thanks to huge tenant demand – which is naturally driving up prices.
“The market has changed massively in the last decade,” James Favas of local estate agency Purplebricks told the Manchester Evening News. “Prices can range between GBP750 (USD900) to GBP2,500 (USD3,050) a month. I would say the prices are going up around GBP50 (USD60) to GBP75 (USD90) a month.”
Numbers like these, combined with the significantly lower price of property compared to London, are eye-catching. “Yields are greater than those that can be achieved in prime central London,” confirms Whalley of the Manchester-China Forum.
Still, rental supply remains a major issue in the UK. “While growth may have recently slowed down because of uncertainty, the continued shortage of housing stock, particularly in the south east of England, is acting as a support,” explains Weaver. “Britain simply doesn’t have enough homes, to buy or rent, and this problem is unlikely to be resolved any time soon.”
The Royal Institution of Chartered Surveyors (RICS) has warned that with home ownership becoming unaffordable for many, there will be a shortfall of 1.8 million rental homes by the year 2025 unless something is done.
“We are facing a critical rental shortage and need to get Britain building in a way that benefits a cross section of society,” says Jeremy Blackburn, RICS head of UK Policy. “We must ensure that [the rental sector]is fit for purpose, and the government must put in place the measures that will allow the rental sector to thrive.”
It seems the government is listening. In October, it unveiled a USD3.67 billion bundle of measures aimed at speeding up construction by making it easier for developers to access funding. The Home Building Fund will be a fundamental part of helping the government achieve its goal of delivering a million new homes by 2020.
Whether or not the country’s property developers will be able to keep up with demand, one thing seems certain – a good portion of that demand will continue to come from Asia and in particular China.
As Juwai’s Morris says, it’s all about weight of numbers: “Because of its rapid economic growth, there will be 74 percent more dollar millionaires in China by 2020, reaching a new total of 2.3 million. Chinese investors have already put more than USD12 billion into UK property, and this asset class accounts for nearly one-third of the country’s total investment in Britain.”
Where to buy
PROS: Alpha city; world’s most visited city; home to more ultra HNWI than any other city; international education hub
CONS: High living costs; unpredictable weather
PROS: Dubbed most livable city in the UK; world-class shopping; thriving arts, culture, and entertainment scene; largest student populace in the UK; growing tech hub
CONS: Decreasing home ownership rate; high crime rate
PROS: Large financial centre; British cultural hub with massive arts festivals; thriving tourism; medical education destination
CONS: Housing shortage; the cold weather
What to know about markets outside London
In terms of British finance, property, business and media, London can seem like a black hole, its gravitational pull drawing in people and money alike. In a bid to change the balance, the Conservative government came up with its “Northern Powerhouse” project in 2014. The wide-ranging proposal aims to nurture economic growth in the northern English cities of Manchester, Liverpool, Leeds, Sheffield and Newcastle. Key to the plans are transport improvements, including the east-west High Speed 3, which will connect Liverpool, Manchester, Leeds, Sheffield and Hull.
The UK government is heavily reliant on Chinese money to achieve its goals. When Chinese President Xi Jinping visited Manchester in 2015, he announced the direct Manchester-Beijing route that Hainan Airlines now flies four times a week and which is expected to bring in USD300 million-worth of economic benefits to the area. Chinese firms such as Beijing Construction Engineering Group, meanwhile, are involved in major building projects in the area while firms such as Hong Kong Homes are selling homes direct to Asian buyers.