UK plans trade deals with China for real estate development

China UK

With the Brexit looming, Britain is “actively forging” trade deals beyond the European Union. This week, Prime Minister Theresa May and Chancellor of the Exchequer Philip Hammond met with Chinese Vice Premier Ma Kai in a move to attract Asian funding for UK developments.

“I’m determined that as we leave the European Union, we build a truly global Britain that is open for business,” May said in a statement. “That is the message I took to India this week, and that’s the message I will be giving Vice Premier Ma Kai on his visit to the UK. As we take the next step in this golden era of relations between the UK and China, I’m excited about the opportunities for expanding trade and investment between our two countries.”

“The mutual benefits are clear,” Hammond said. “China is the world’s second-largest economy; UK exports to China have grown rapidly and Britain is home to more Chinese investment than any other European country.”

New Developments

As part of the visit, ABP, the Chinese development company leading the development of a £1.7-billion business district in East London’s Royal Albert Dock, will sign a funding agreement to enable work to begin on the delayed scheme next year. According to the Financial Times, the development stalled when China Minsheng Investment Group pulled out after failing to agree an equity split with ABP. This raised doubts about the plan despite at least three previous signing ceremonies. ABP said that work on the project will begin on the first of six phases early next year, and the phase should be finished by 2018. The entire development is expected to be completed within eight to 10 years.

Four Chinese banks will provide £1.2 billion of funding for the 35-acre development close to London City Airport and the new Crossrail line. CITIC Construction—a subsidiary of the CITIC Limited, China’s largest conglomerate—will invest £200 million in the project—one of several Chinese-backed developments under way in the city.

Other projects include The Spire, a 67-story residential tower in east London, and the Wanda One hotel and residential project south of the Thames by Dalian Wanda, the world’s largest property developer.

Chinese Investment in UK Hotels

“We are seeing a large amount of interest since Brexit from Asian investors focused on prime hotel and residential assets in central London," Will Hawkley, UK head of leisure, KPMG UK, told HOTEL MANAGEMENT less than a month after the vote. "They have been poised to take advantage of what they see to be a window of opportunity caused by the weakness of the pound. Assets have suddenly become cheaper for them, especially compared to pricing and levels of competition in their home markets.  

Bernie Morris, president of the UK, Europe and Middle East region for Chinese online property portal, told MarketWatch over the summer that property inquiries by potential Chinese buyers in the weeks right after the June 23 referendum were about 30 percent to 40 percent higher than the 2016 average, according to Morris.

In June, just after the Brexit, King Express Development, a wholly owned subsidiary of Hong Kong-listed Magnificent Real Estate, paid just over £70 million for the 408-room Travelodge London Kings Cross Royal Scot Hotel. “We are probably the first company to buy a property in London amid the Brexit overhang,” said William Cheng Kai-man, chairman of Magnificent, said at the time.

Just a few weeks later, Chinese property tycoon Zhang Songqiao’s Y. T. Realty Group real estate investment firm acquired the Travelodge Liverpool Street Hotel in Central London from two investment holding companies based in Luxembourg. The hotel sold for £42.3 million—in dollar terms, CNN noted, that's nearly $8 million cheaper than before the Brexit vote.

The investment into the midscale sector is a smart move: A recent study by the British Hospitality Association, alongside credit card group Discover Global Network, found that travelers from China were currently focused on the three- and four-star hotel market, preferring to spend their money on goods rather than accommodations. This is expected to change in around five years’ time, when the market matures, but, the study warned, education of the value of luxury hotels was key, as well as identifying the luxury service that Chinese guests were looking for.