Asian Cash Driving a Strong Play in London Property

 | Jul 18, 2017 | 11:00 AM EDT
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London is, like the world's biggest and best metropolises, always changing. It has plenty of tradition, sure, but its biggest tradition since the Romans established Londinium is one of reinvention. It does not sit on its history, other than in the form of long-buried Italian-empire-funded walls.

In some cases, the walls are now being built by the Chinese, who of course have history in that regard. New development is springing up all across the city, often bought up by Chinese yuan and increasingly funded by mainland developers or joint-venture partners, too.

That may raise the hackles of long-time residents. But it also raises the prospect of good investment returns. Follow the money, they say, and it's heading East to West. Most recently, the Chinese developer Cheung Chung-kiu is setting up an office in Mayfair with an eye on London assets to supplement its deal to acquire the "Cheesegrater" skyscraper in the City of London.

I've been in the British capital the past two weeks over the course of Wimbledon. It has been a family trip for my kids to spend time with Granny and Grandpa; Bristol-born, I've been in Hong Kong 16 years, but my folks still live in Britain.

The trip has been interesting for someone who is British by passport only at this stage, having lived out of the country for 27 years, or almost two-thirds of my life. Sunday's record-setting eighth victory for Roger Federer in the men's singles had me thinking about the meaning of money, as I wrote yesterday. The rest of the trip had me thinking about what whether I could ever live in my homeland again.

The political conditions in Hong Kong have my Hong Kong-born wife worried. Mainland President Xi Jinping ostensibly came to the city on July 1 to honor Hong Kong's 20th anniversary of its return to China. His actual message was a warning for Hong Kong to remember its place, as a subservient city, for its citizens not to get any ideas about going up against the Communist state. 

Now six rightfully elected politicians have been removed from office due to an "interpretation" of Hong Kong's constitution, the Basic Law, by Beijing. Nine more are at risk. The Basic Law says nothing about how you should take your oath on joining the Legislative Council. But apparently, it meant to say an awful lot that just somehow got left out.

Due to the "interpretation," it seems that mispronouncing China, using a questioning tone of voice or even reading the oath too slowly is grounds for dismissal permanently and with no questions asked. Hong Kong's laws are ultimately meaningless, since any decision that doesn't go in China's favor is easily overturned by Beijing's version of what the law should say, if it inconveniently doesn't say it already.

Suddenly, members of Hong Kong's equivalent of Congress must take their oaths "sincerely and solemnly," with no second chance. The newly created non-law is now being used to remove elected legislators. That they are all democrats, some of whom favor independence for Hong Kong, is surely a coincidence. Their removal means that the veto power previously held by the democratic camp is no longer, and Beijing loyalists essentially can do what they want in changing, subverting or supplanting Hong Kong's precedent-based laws.

Mainland Chinese citizens long since have faced the fact that their rights only hold as long as the Communist Party permits -- suggestions, really, rather than rights. As a result, half of China's millionaires said they plan to leave the country within five years, when polled in 2014. Only 16% of Hong Kongers said the same, but I bet that statistic is rapidly on the rise.

Chinese emigrants head first and foremost to gateway cities. Mainland Chinese have a preference for either of the United States coasts, as well as Canada and Australia. But London ranks up there as a destination, too, and is particularly popular with Hong Kongers given the city's colonial roots. 

There's plenty of Chinese capital finding a home in the British capital. That's literally true in the case of newly built residential blocks in particular. The Nine Elms redevelopment of the area around Battersea Power Station is extensive and an opportunity to buy newly built property with a clear view along the Thames. Just south of the river, the neighborhood around the power station stood empty for an age while the huge smoke-stacked building remained derelict, used only for a Pink Floyd album cover.

It has been revived with an injection of money from Malaysia. The station will breathe new life after a multiuse office, retail, hotel and residential overhaul. All around it, there are new residential towers sprouting up. The nearby waterfront projects include One Nine Elms, a development by a subsidiary of Dalian Wanda, the conglomerate owned by China's richest man, Wang Jianlin.

The project is Wanda's first overseas foray. Although Wanda is apparently a "paragon of luxury and style," according to the brochure, it has never tested itself against external standards. It will be a severe examination, but one where the company will pick up substantial best practices to use back home and vital international diversification.

All the available apartments at One Nine Elms already have sold out. There aren't statistics on how many of the flats have gone to Chinese citizens, but I receive at least a flyer per day in my Hong Kong mail touting a British property project, so it's clear cashed-up Asia-based buyers are a significant market.

Asian buyers weren't much affected by the global financial crisis, bad debt cleared out already by the Asian crisis a decade before. They also are accustomed to buying new property off-plan, unlike the British. That provides developers with convenient cash flow to fund construction while it's still going on or before it even starts.

Nine Elms strikes me as an excellent investment opportunity. The redevelopment, the largest in Europe, sits directly across the Thames from some of London's most-expensive real estate: Pimlico, Westminster, Mayfair, Chelsea. There are two new stations on the Underground under construction as well as a footbridge to Pimlico, factors that should propel local real estate higher and at a faster price than similar parts of town.

The redevelopment is also controversial, not least for the preponderance of Asian buyers in the projects. My London-based cousin told me he thinks they all will be absentee landlords or investors who leave the flats empty, destroying any new-neighborhood feel. The prices, which essentially start toward the £1 million ($1.3 million) mark and move up rapidly, are out of reach of the vast majority of Londoners. The architecture doesn't fuse or fit with the city, he says.

To me, the market will set prices efficiently, and new can combine well alongside old. Flats may be out of reach of "regular" buyers, but that's also true in the neighborhoods on the other side of the river. I'm sure the world's well-off will benefit from views of the Thames. While the upside from £1 million isn't at all clear, the British pound has been so bashed by Brexit that there's a 60% upside on the currency exchange alone.

Britain colonized plenty of the rest of the world; a trip to the Imperial War Museum informed me that when World War I started in 1914, one in four people on the planet lived under the Union Jack. The sun famously never set on the British Empire at that time.

The sun has now set, but the results of that international expansion are clear to see. The city benefited from many of the brightest minds that sprung out of its colonized lands. Nowadays, and always, London is cosmopolitan enough to welcome a few more foreigners.

Good property is never cheap. The London market is open to those who can afford it, and its property market is as liquid as anywhere. For purchasers, it is practically bomb-proof, although that hasn't literally proved to be the case in the past. Figuratively, it sure is. 

All those factors should be enough to attract any interested buyer with the 10% necessary deposit, if they're able at low interest rates to fund the rest of a purchase. It's not easy. But as the saying goes, if it was easy, everyone would do it. I very much doubt owners of the new flats in the redevelopment area will regret the decision.

The city is changing around Nine Elms, part of its permanent flux. It takes in foreign buyers and residents voting to stay in Britain, while the rest of the city wanted to depart. Perhaps, if the situation in my adoptive home city becomes untenable, it may even welcome back a prodigal son.

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