The rate of Chinese investment in London’s commercial property market is showing signs of slowing. Investors pulled out of three high-profile deals last month, sparking concerns that optimism about Britain’s otherwise-improving commercial property market may be misplaced. Why is Eastern investment slowing, and what do the recent withdrawals mean for UK commercial landlords?
Is the tide turning?
Chinese investors have historically seen the UK as a safe haven for investment, prompting an ever-increasing number of buyers to enter the British property market. International estimates of Chinese investment values in Britain indicate a rise from US$0.6bn to approximately US$15bn between 2009 and 2014.
However, the recent collapse of three large commercial property deals in London suggests that this trend mightn't last forever. China's biggest private investment fund, the China Minsheng Investment Group, has withdrawn from a £1.7bn development in East London, while the Anbang Insurance Group has decided not to pursue purchase of the Heron Tower. Likewise, the Shenglong Group has abandoned a scheme to buy Thames Court, citing Chairman Lin Yi's decision to prioritise the Chinese domestic market over international investment.
China's economic troubles are a likely root cause of withdrawal from overseas deals. The country's economic growth recently hit a six-year low of 6.9%, meaning that investors are becoming more cautious about taking on high-cost assets. Speculation over the future of the Renminbi is also introducing uncertainty, as investors whose capital flow starts in Renminbi but whose liabilities are held in foreign currencies fear rising costs if the Chinese currency plummets in value.
Preparing for the future
While not a certainty, the possibility of reduced Chinese purchasing power could be a double-edged sword for UK landlords. On one hand, a retreat might open up opportunities for British commercial property investors to expand their portfolios without having to out-bid foreign buyers. At the same time, British landlords may lose out on chances to turn a profit by selling to wealthy Eastern entrepreneurs.
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