Despite the Brexit referendum and the Chinese government’s capital controls, Chinese investors’ interest in the UK’s real estate sector has continued to surge. At the same time, Britain is on its way to a record-breaking year for inbound Chinese tourists and tourist spending. While this is all good news, many are concerned that the sudden increases in spending by both investors and tourists are only temporary and are primarily related to the weakening of the pound. However, recent investments suggest Chinese investors are in it for the long haul – and they believe Chinese shoppers are too.
Increase in UK Property Investments#
The depreciation of the pound following Brexit has been a golden opportunity for investors from mainland China and Hong Kong to purchase London real estate at a discounted price. According to data from CBRE, in the first six months of 2017 Chinese investors spent 3.96 billion pounds (5.10 billion) on London commercial property, the highest amount on record, significantly outperforming the 2.69 billion pounds spent in the whole of 2016.
It’s not only commercial properties they’re interested in. Ramp;F Properties, a Guangzhou-based firm, has purchased two residential sites this year: the Nestlé Tower and surrounding sites in Croydon and Vauxhall Square, a mixed-use development in Nine Elms. Earlier in the year Chinese property group Country Garden revealed it is planning on building tens of thousands of homes in London.
Chinese investment is not limited to London. In late 2016 Country Garden signed a preliminary agreement to invest up to 2.7 billion in the UK’s second largest city, Birmingham. Additionally, Chinese developers unveiled plans to build a luxury hotel and 150 villas near the town of Ashford in Kent.
While the weakened pound is important, for some, the decision to invest in the UK is due to increased regulations in other countries, such as Australia, which was formerly a hotbed for Chinese real estate buyers. Recently Australian banks have stopped lending to foreign buyers, making it nearly impossible for Chinese investors to receive financing and causing them to look elsewhere for investment opportunities.
Tourists Drawn to the UK for Lower Prices on Luxury Goods#
Another upside of the weakened pound has been the huge influx of Chinese visitors, drawn to the UK by cheaper prices on luxury goods. Retail research firm Global Blue reported that the number of visitors from China grew 31 percent year-on-year in July 2017.
China is one of the most expensive places for luxury shopping, with a large price gap between China and the UK mainly due to import taxes. Luxury goods in China cost about 21 percent more than the global average, while on the other hand, prices in the UK are about 18 percent cheaper.
As if the stronger exchange rate and price disparity wasn’t already enough of a bargain, Chinese tourists have been flocking to the UK’s many designer outlets to get an even better deal on luxury goods.
But Will It Last?#
While the current upswing in spending may be largely attributed to the depreciated pound, Chinese investors obviously feel that Chinese tourists’ current obsession with designer outlets will continue for the foreseeable future.
The plans to build a luxury hotel and 150 villas near Ashford, home of the popular Ashford designer outlets, are a prime example. The developers are hoping that the four-star leisure facility would attract flocks of tourists looking to take advantage of the village’s proximity to the outlets along with its strong transport links to London and the rest of Kent.
The developers are still in the initial planning phases and the facilities might not open for another couple of years, a clear signal that Chinese investors are convinced that Chinese travelers’ desire to purchase discounted luxury goods in the UK won’t be waning anytime soon.