The UK is competing on the global stage with rival economies worldwide, for an ever-increasing deluge of Far Eastern, and in particular Chinese, capital.
This was starkly clear at MIPIM Asia, now in its 10th year, held last month in Hong Kong and attended by 900 delegates.
An Estates Gazette panel session, in partnership with Savills, explored outbound investment to the UK and there were plenty of reasons for the UK property industry to be optimistic about its stature on the world stage. But it would be a mistake for the market to take this for granted.
The northern powerhouse and the private rented sector are both major draws, and chancellor George Osborne’s drive behind both areas is not going unnoticed. “We are now starting to look at projects nationally,” said Neil Robinson, director of global communications at ABP London Investment, the Chinese company behind the regeneration of London’s Royal Albert Dock.
“The government is promoting the north of England, and rightly so, as a place of opportunity. ABP is partly interested in that because the margin for success can be quite large as land can be quite cheap.”
With the political will behind growing the northern economy with infrastructure investment, Eversheds partner Bruce Dear said that making long-term investments that align with this agenda is something Far Eastern investors should be considering.
“At first I thought it was just a marketing exercise by the UK government, but I think there is money to be made by being part of it. The UK will become less London-centric and it has to become more of a balanced, multi-centred economy like in Germany,” he said.
Not everyone was convinced, however. Frank Marriott, senior director and head of real estate capital market, Asia Pacific, at Savills said that the majority of new Chinese capital was first attracted to the US and when moving to the UK would generally only be targeting London.
“The UK is falling a long way behind the US and Australia in attracting Chinese capital. London now looks very toppy. It may not be the top of the market but just the new norm,” he said.
“Mainland clients are not interested in anything other than London. The Chinese high-net-worth money is more focused in the US as that is where more of their kids are at university. The Chinese attitude is to focus on the US, and the South East Asia attitude is to look to the UK because of historical ties.”
Osborne’s hiking of stamp duty on second homes in last month’s Spending Review is predicted to damage the buy-to-let market for private investors. However, with the new rules not applying to institutional investors, this could give a further boost to the private rented sector and a further reason for Asian capital to enter the market.
“There is a real opportunity in the build-to-rent market for bigger institutional players now. With the chancellor having effectively destroyed the buy-to-let market, there is an opportunity to fill that vacuum,” said Dear.
“That exact thing has happened in the student accommodation market to the point that it is so heavily institutionalised it is not affordable for us,” said Richard Thomas, senior advisor to the board and chief representative at Gatehouse Bank, which has established its own PRS platform backed by Sigma Capital.
The restricted supply/demand dynamics of the UK housing market, and in London in particular, have already been successful in drawing in Eastern capital and that trend is likely to accelerate, according to Cindat Asset Management’s chief executive Greg Peng. Cindat last month invested into Brockton Capital’s 60 Curzon Street, W1, a luxury residential scheme.
“London is structurally short of housing and population growth has outstripped housing supply for decades. It is very hard to build in London as you are restricted by the green belt, and London is a magnet for aspiring talent from all over the world,” he said.
China and emerging markets may have had an unsteady time in 2015, but as its major investors look to diversify away from their home markets it appears that the tidal wave of capital from the region will continue to crash on to the UK’s shores.
david.hatcher@estatesgazette.com
