Login | Register
22/11/2017

The regulation of Chinese foreign investment and its effect on the global property market

Chinese Renminbi

Chinese moves to restrict overseas investment will be damaging to the UK property market – unless it can find alternative investors around the globe, says Alistair Williams

At a time where isolationism seems to be more popular than ever, the Chinese government has instructed its banks to cut off funding for some of the nation’s largest investors and their overseas interests.

Chinese conglomerate, Wanda, has backed out of a deal for the £470 million Nine Elms Square Development following a crackdown from the Chinese government on capital outflows internationally. The ban prohibits certain investments and could go so far as to insist on the sale of non-performing loans in an attempt to strengthen the already weakening Yuan.

However, commentators have highlighted the difficulties this may bring. They suggested that, as relatively new investors during the economic boom seen in China over last decade, their strategy for acquisitions was to aggressively outbid other investors. If other buyers were not willing to match their valuations of investments back then, why would they want to now? Will this then have a negative effect and actually harm the companies that the Chinese government seeks to protect?

The effect on the international property market

The bans come into place during a time where various Chinese investors have roughly $80 billion in pending international deals that do not comply with these new regulations. Real estate has been placed onto a restricted list and makes up roughly 40 per cent of the $80bn.

"Should the property market continue to depend so much on Chinese investment and what happens when they are no longer there?"

Around the globe, China is responsible for a huge amount of real estate investment. For instance, so far in 2017 they make up 30 per cent of all Manhattan transactions, a location where commercial property has decreased in value 55 per cent year on year. This figure is astounding when you consider that during the first five months of this year Chinese investment has fallen by 84 per cent worldwide. The question remains, should the property market continue to depend so much on Chinese investment and what happens when they are no longer there?

The effect on the UK specifically

Following the result of the EU Referendum, I felt that we would become more heavily reliant on investment from outside Europe than ever before. You can imagine then my concern on learning of the decision by the Chinese government to crack down on foreign investment.

Since June 2016, foreign investment has made up 85 per cent of investments within the City of London. China is part of an Asian market that accounted for 50 per cent of the total investment. China itself was responsible for 25 per cent (up from 1% in 2006) of all central London commercial property investment. That’s a huge amount of investment into the UK property market, which at present time has no clear alternative investors. Will this trigger a slowdown in the UK property market or will UK investors begin to fill this void? Time will surely tell.

It would appear these restrictions could prove to be extremely detrimental to an already turbulent property market and suggests the need for a wider distribution of investment across the globe. In the year when Donald Trump and his ‘America First’ administration came to power it is yet to be seen whether the benefits to large corporations that are being given will see a greater investment into property at home and abroad and the effect of that on the market.

The UK has seen more and more investment from Qatar in recent years. With acquisitions of Canary Wharf, which includes 20 Fenchurch Street, and the “Walkie Talkie Building”, another £5bn is on its way in the next five years. Will Qatar be the UK’s next big foreign investor? The reduced value of the Pound following Brexit could incentivise this further as they will gain better value in their investment.

The Chinese market itself is facing its first slowdown, with prices falling in Beijing for the first time since February 2015 which could explain a shift towards isolationism. The initiative is intended to grow investment into China’s One Belt One Road project, but the extent of this measure and its effect on the global property market is yet to be seen. Surely this poses a concern for the market; but only time will tell whether this concern is warranted.

Alistair Williams is a recruitment consultant with Oyster Partnership

Image | iStock


Advertiser content from Oyster Partnership

Tags