85% of Chinese Investment in Overseas Property has been Retracted

Aug 25 2017

Darren Best

Since 2006, London has seen a 24% increase in Chinese commercial property investment. However, recent events such as Dalian Wanda (China’s largest real estate development company) pulling out of the £470m purchase of Nine Elms Square in south-west London, it would appear that this growth will not continue in Britain. Wang Jianlin, the business magnate behind Dalian Wanda, has stated that the company would shift investment focus to the domestic Chinese market. A move that may be repeated by other property companies in China.

Chinese Investment Overseas Halted by Government

The decision made by the Chinese government to place foreign property purchases on a “restriction list” has been the driving force behind plummeting overseas investment statistics. This comes after the state planner describing such ventures as the "irrational” acquisitions of foreign assets. Over the past year, this limitation on capital outflow has caused Chinese investments to drop to almost half of what they were the previous year. Only a few weeks ago, it was announced that the China Banking Regulatory Commission has reduced funding for foreign property ventures. The impact of such a withdrawal will surely be felt as London’s financial district has been thriving on Chinese investment as of late. In fact, it accounted for over half of all the City’s investment over the past year. A record £4bn has been spent on commercial property in the capital so far in 2017, with investors owning some of London’s most sought-after buildings, such as the “Walkie Talkie” tower, which was sold to a Hong Kong conglomerate for a record-breaking £1.3bn in July. The effects of China’s limitations on foreign outlay will not only be felt in the UK. China is also one of the largest foreign investors in the US. This raises questions on whether China will remain a global power buyer in the future.

UK Commercial Property Capital Worth Slows

Not only has foreign investment decreased, but the value of UK commercial property capital has also slowed in recent months. According to the latest CBRE monthly index, capital values saw a smaller growth in July (growing by 0.3% on average) compared to the increase of 0.6% recorded in June. The growth of the office sector was boosted by offices in the City of London, recording a 0.3% increase in July compared to the slightly larger increase of 0.4% in June 2017. Rental value in London’s office sector has also not risen in 6 months. In fact, central London office rental values saw a slight decrease of -0.1% last month. However, this is an improvement over June’s recorded decrease of -0.3%. However, it should be noted that this slowing performance is not “unusual for the first month of a quarter” explains Miles Gibson, head of UK research at CBRE. He goes on to state that this is especially true “following the strong performance of H1 2017.”   Feature image credit: / Vitchanan Photography

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