An estate agent has recently predicted that capital from rich Chinese investors is set to drive prime London property development. Simon Morris discusses what this could mean for investors’ who are seeking to enter the UK capital’s lucrative residential property sector.
Prime London property
Various evidence shows that property developers can secure attractive returns if they develop property in the prime areas of London. Analysis conducted by Knight Frank, for example, shows that London house prices rose 17.8 % in 2014, according to Property Wire.
The prime areas of London are particularly lucrative because there is a shortage of housing stock in the most desirable living locations in the UK capital. City A.M recently wrote that search agent Banda property has revealed that this has persuaded many buyers in prime London to insist on 24 exchange windows on at least 15% of all offers over the past year, to capitalise on fierce competition.
Chinese to invest in London property develop
In other words there is a strong demand for housing in prime London, but these areas don’t have the supply to meet it. The prime areas of London need to develop more residential properties, and Simon Barry, head of new residential developments at Harrods Estates, recently suggested that rich Chinese investors are going to increasingly meet this need.
Barry commented that “there is a huge amount of wealth in China and although we have started to see investment in London property in the last five years, the focus has been on off plan new build developments ranging from £500,000 to £5 million.” He went on to say, “this is just the beginning of a vast amount of wealth from China and we expect this will increase dramatically over the coming years, when Chinese billionaires will look to spend anything from £5 million to £50 million.”
Lifting restrictions on Chinese investors
The prime London residential property market has received minimal capital input from Chinese investors in recent years. This is because until now, capital controls have forced wealthy Chinese to limit property purchases to US$50,000 per annum. A revised version of the Qualified Domestic Individual Investor programme (QQII 2), which set down this limit, has recently been announced. Barry suggested that when it’s implemented, it will provide rich Chinese with the incentive they need to invest in prime London residential property.
He explained that “the programme will be open initially to anyone working in six major cities with assets in excess of circa US$160,000, and will allow them to export up to 50% by value of their net worth. For corporate investment the capital limit would rise significantly to US$1 Billion.” The head of new residential developments suggested that this, along with the slowing of China’s economy and the attractiveness of London’s education sector, will persuade wealthy Chinese investors to develop residential property in the prime areas of London.
Meeting demand for residential property
Barry makes a valid point. The Chinese have been investing in prime London property development for a long time, and the revision of capital controls gives them even more reason to do so. This could drive London property development, as it will supply developers with the support they need to meet demand for residential property in these lucrative areas of the UK capital.