Property power shifting to emerging nations

Regular readers will know I am a proponent of the 'shifting tectonic plates' theory – that whatever happens after the global recession, there will be new powers that drive the real estate industries across the world.

One of the greatest new powers will be China, a fact that slapped me in the face as I recently wrote a story about how influential the Chinese buyer has become in London's uber-prime residential market.

Look at these extraordinary figures:

- Savills has sold 50 units in a new Elephant & Castle scheme in London to Hong Kong investors – and over the past 12 months, the agency has sold over £100 million (Dh572.80m) of residential real estate to Chinese buyers

- King Sturge claims to have sold more than £500m of units in the past year through its Asian offices (Singapore, Kuala Lumpur and Hong Kong) and

- Knight Frank estimates that since early 2009 some five per cent of overseas buyers in London have been Chinese, with an estimated purchase price of £2/078m.

Other agents, although less bullish about their figures, are equally buoyant about the growing Chinese influence on the London residential market. For example:

- Chesterton Humberts' office in the City of London and Docklands says its is "heavily inundated" with Chinese buyers – mainly students in their 20s, at college in the UK and looking to cash-purchase new build apartments, often in landmark schemes near the Thames

- Harrod Estates says that Chinese buyers now rank, in numerical terms, with those from the likes of Saudia Arabia, Oman and Qatar

- Buying agents say there are large numbers of Chinese buyers these days – those in London tend to be parents of students, or the students themselves, while those in HK and Beijing tend to be investors seeking to take advantage of the favourable exchange rate

- Benham & Reeves Residential Lettings, a rental agency with eight offices in London and one in Hong Kong, says Chinese buyers in the UK capital purchase "either for prestige or long-term capital gain…. some have bought for their seven year old children so they have a place to live in when they go to college later".

London has always been a magnet for international buyers – and appears to be coming out of the recession with that image just about intact – but if you speak with realtors in New York, Paris, Rome and across non-Chinese Asia, the story is the same: the wealthiest Chinese are now out in force, and have become a major player in upscale property transactions. Ironically this is a far cry from what is happening amongst the broader Chinese population back in the country itself. Property appears to be the main tool being used by the authorities to moderate economic growth to a sustainable level, and to avoid the size of downturn seen in capital countries.

For example, the Bank of China, the country's third largest bank, says first-home buyers would only be able to obtain mortgages with a 15 per cent discount on base lending rates – until now, the discount has been 30 per cent.

Other banks are introducing stricter rules on giving mortgages to second home buyers and may eliminate all discount financing for existing buyers. Individuals selling a residential unit after holding it for five years or more are exempted from tax; quicker sellers face a 5.5 per cent sales tax in a bid to deter speculators.

Meanwhile, the state has made clear that China will increase the supply of land for building and will clamp down on developers hoarding it, even taking back plots from builders delaying construction and then limiting them from participating in future government land auctions. Any developer buying government land must now pay a 50 per cent deposit and the rest in less than two years, far quicker than before.

Such measures – even the threat of them – appear to be working. A report from property consultancy DTZ shows new home sales in Beijing dropping 45 per cent in early January, compared to the previous month.

Yet whilst the conspicuous consumption of Chinese overseas appears to contrast with the government clampdown on those staying within its national borders, both facts point to one conclusion: China is taking property, including individual ownership of property, very seriously.

That is evidence, if more were needed, of the tectonic plates shifting and 'property power' shifting from older established nations to new emerging ones.

That is good news for everyone in property, and everyone in business, wherever they are in the world.


The writer is Property Correspondent of The Observer. The views expressed are his own

 

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