The key factors driving Chinese investment in prime central London:

• liberalisation of China’s currency, the Renminbi (RMB)• improved trade relations between China and the UK• rising price of new homes in China’s first tier cities• growth in number of Chinese high net worth

individuals seeking offshore investments• introduction of legislation in Hong Kong aimed at

foreign (largely mainland Chinese) property investors• recognition of London as a ‘safe haven’• increasing number of Chinese children being

educated in the UK

JANUARY 2014

East meets WestLondon pRopeRty ReMains a popULaR asset aMong soUtH east asian investoRs.

High net worth individuals living in singapore and Hong Kong have a long tradition of investing in UK property but, in recent years, they have been joined by a growing number of investors from mainland China. London is their city of choice and they have invested heavily in some of the capital’s most prestigious real estate. the liberalisation of the RMB has seen buyers from mainland China become major players in the market, as trading and foreign investment is made much simpler and enticing.

the current strength of the Chinese currencyalso means that the cost of buying propertyassets in central London is 8% cheaper thanit was six years ago. this is an attractive proposition, especially when prime central London property has been averaging growth of 9.1% per annum over the last few years, according to data from Lonres.

traditionally Hong Kong had been the investment centre of choice, but in 2012the government introduced a 15% tax on foreigners which many believe was targeted at wealthy mainland Chinese buyers. Research in Q1 2013 by Hong Kong-based property agency Centaline highlighted the impact of the new tax, recording that sales of luxury houses to mainland Chinese investors had fallen to a four year low.

in looking for alternative countries in whichto invest their money, it is not surprising thatsea investors should look to the UK. With itssafe haven status, prestigious schools anduniversities, proximity to mainland europeand ease of access to the Usa, it presents an attractive proposition.

this is a fact not missed by the association of Foreign investors in Real estate (aFiRe), who recently named London as the city offering the best real investment opportunities for foreign investors.

Where are sea investors buying?

sea investors have traditionally boughtin new developments in the core areasof prime central London, typically a oneor two bedroom apartment in a new buildscheme. Many buy just one apartment,but some high net worth families can,and often do, spend millions.

increasingly sea investors are buyingalong the south of the river in an areawhich takes in Battersea, nine elms andvauxhall. at Ballymore’s embassy gardensscheme in nine elms, the number ofChinese buyers (17%) is second onlyto the number of UK investors.

Following rumours that China’s embassymay relocate to nine elms, the Chinesedalian Wanda group has purchased onenine elms, the company’s first propertyproject in London. Here they plan todevelop over one million square foot ofspace in two connected residential, officeand retail towers of 45 and 60 storeys.other development projects include theRam Brewery site in Wandsworth, whichwas bought recently by China’s largestreal estate developers, greenland Holdingsgroup. the group’s first UK development, this site has planning consent for 661 newhomes and a 36-storey residential tower.

British education is a key attraction

education is one of the key drivers that sea investors cite when looking to purchase in the UK. High net worth families are attracted to the UK’s independent schools, which carry both prestige and status. a recent report by the Chinese magazine Hurun revealed that 85% of high net worth individuals were planning on sending their children abroad to study. 22% said that the UK was their preferred choice.

in 2012, the British independent educationCouncil carried out a survey which showed that 14.1% (3,708) of primary and secondary children in UK independentschools were non-British with parents livingin mainland China (37% if you include Hong Kong). this figure was up by 15%

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on the previous 12 months and is expected to continue to rise by 10% year-on-year. such are the numbers of sea students, that many independent schools now teach Mandarin alongside other sea languages to both overseas and UK students.Furthermore, a number of UK based schools have successfully exported their brand to south east asia. in 2012, Harrow opened an international day and boarding school in Hong Kong, while dulwich College now has schools in Beijing, shanghai and suzhou.

if primary and secondary education acts as a catalyst to UK residential investment, a second wave of investors enters the country at the point their children reach higher education. the reputation of UK universities has long attracted international students.

this attraction has not diminished overtime. the 2013/14 World University Rankings compiled by The Times placed 10 UK universities in the top 100. ofthese, four were in London (imperial College, University College London (UCL), London school of economics (Lse) and King’s College).

the growth in the wealth and populationof China in recent years has fuelled thenumber of students choosing to study in the UK. according to the Higher education statistics authority (Hesa) student record in 2011/12, China topped the list of full-time students non-domiciled outside the eU at 78,715. over the past year, the number of full-time students from China has increased by 16.9%.

the London universities most popular with Chinese nationals are UCL, imperial College and University of the arts. these universities alone had 3,796 full-time students from China in 2011/12, an increase of 77.8% over the last five years, or 15.6% per year annualised.

in 2011/12, 37% (2,795) of Chinese students studying full-time at London universities lived in the private rented sector (pRs). Compared to five years earlier, this figure had risen by 3.3%. the pRs is the only accommodation type, after private sector halls (which increased by 5.2%) to have gained a share of the student accommodation market during that period. the sector looks set to grow further as sea tenants increase in numbers.

Term-time accommodation type for full time students domiciled in China in London universities

Source: Hesa student Record (top 10 by Chinese students in 2011/12)

When it comes to student accommodation,sea students prefer purpose built blockscomplete with en-suite rooms and broadband. interestingly, the Chinese state owned gingkotree investment has purchased a £540m stake in student accommodation development company Up.

student accommodation outperformed other classes in the last year (sept 2012– sept 2013), and total returns are nearly10% higher than those on offices, industrialand retail property. it is estimated that by2016 the private sector will make up over50% of all student housing (gva 2012).

For those students studying in Londonwhose families can afford to buy, livingcentrally in prime locations, with goodtransport links, is the preferred option.these families typically have a budgetof around £1m to invest in a new buildapartment as a short-term home fortheir student son/daughter but also as a long-term investment beyond their child’s graduation.

Institution

Spend £m Visits (000s)

Private Sector Halls

Parent / Guardian Home

Own residence

Other rented

Other

80

70

60

50

40

30

20

10

02005

Source: International Passenger Survey, ONS, 2013

2006 2007 2008 2009 2010 20122011

50

40

30

20

10

0

-10

-20 Sterling

EuroHong Kong dollar

Japanese yen

Singapore dollar

Chinese yuan yen

Safe Haven Education

Chinese wealth spreading

9.1%AVERAGE GROWTH PER

ANNUM OVER LAST THREE YEARS ON CAPITAL VALUES IN PRIME CENTRAL LONDON

Source: Lonres

LONDON - NAMED CITY OFFERING BEST REAL

INVESTMENT OPPORTUNITIES FOR FOREIGN INVESTORS

Source: Association of Foreign Investors in Real Estate (AFIRE)

IN THE DECADE TO 2011, THE UK (LONDON) HAS GONE FROM 11TH TO 5TH PLACE

IN PREFERRED LUXURY DESTINATIONS BY CHINESE

DOLLAR MILLIONAIRESSource: Hurun Wealth Report (2012)

LONDON RANKED AS THE TOP CITY AS A PLACE TO LIVE IN THE BI-ANNUAL ANHOLT-

GFK CITY BRANDSSource: Bi-Annual Anholt-GFK City

Brands Index (CBISM) September 2013

37% OF INDEPENDENT PRIMARY AND SECONDARY SCHOOL CHILDREN IN THE UK HAVE

PARENTS DOMICILED IN CHINA OR HONG KONG

(14% IN CHINA)Source: British Independent

Schools Council, 2012

76% INCREASE IN FULL TIME

STUDENTS DOMICILED IN CHINA IN TOP 10 LONDON UNIVERSITIES IN 2011/12

Source: HESA

Why London?

500,000 ‘HIGH NET WORTH’ INDIVIDUALS (I.E., AT LEAST 10 MILLION RMB

IN INVESTABLE ASSETS) IN 2010 IN CHINA

Source: Bain & Company/China Merchants Bank

£3.5bn ESTIMATED TO HAVE BEEN SPENT

ON UK PROPERTY IN 2013 BY CHINESE INVESTORS

Source: Juwai.com (China’s largest international

property website)

25%INCREASE IN AIRLINE SEAT CAPACITY SINCE

2011, MAINLY DUE TO NEW ROUTES TO CHENGDU

AND GUANGZHOU FROM HEATHROW

Source: Visit Britain150% INCREASE IN ALL CHINESE

VISITOR SPEND IN UK (2009-2011)

Source: International Passenger Survey 2012

26.3% INCREASE IN SPENDING

ON BUSINESS TRIPS FROM CHINA TO LONDON

SINCE 2005Source: International

Passenger Survey 2012

43,000 BUSINESS TRIPS

FROM CHINA TO LONDON IN 2012

Source: International Passenger Survey, 2012

BY 2015, CHINESE MAINLAND MILLIONAIRES COULD ACCOUNT FOR UP TO HALF OF THE RICHEST

PEOPLE IN ASIA’S 10 MAJOR ECONOMIES AND HOLD MORE

THAN HALF OF THE WEALTHSource: Julius Baer

Private Banking, 2013

44,000 HNWIs IN

BEIJING ALONESource: Bain & Co / China

Merchants Bank

Cost of buying a property in central London in Chinese Yuan is 8% cheaper than six years ago

Chart shows how much more capital investors from each country would need to find in 2013 compared to 2007 to buy a property in central London.Source: Lonres/Bank of england

Institution

Spend £m Visits (000s)

Private Sector Halls

Parent / Guardian Home

Own residence

Other rented

Other

80

70

60

50

40

30

20

10

02005

Source: International Passenger Survey, ONS, 2013

2006 2007 2008 2009 2010 20122011

50

40

30

20

10

0

-10

-20 Sterling

EuroHong Kong dollar

Japanese yen

Singapore dollar

Chinese yuan yen

there is little doubt that China will remain a powerhouse for a significant time to come.in 2010, it boasted the largest economy(behind the Us) with a gdp of over $1trillion. this is forecast to grow to $80.02trillion by 2050, overtaking the Us (WealthReport 2013). it is widely believed that by2050, China will have become the largesttrading nation in the world. internationalpassenger data shows that although thenumber of visits to the UK from China havenot quite recovered to the peak of 2007,the amount spent is at its highest level since2005, at £72m in 2012. the significance of China to the UK economy cannot therefore be underestimated.

With the liberalisation of the RMB improvingtrade relations and the number of highnet worth individuals in China increasing,the country now boasts the second largestnumber of billionaires anywhere in the world. it is likely that the £3.5 billion of investment by Chinese investors in UK property last year will rise significantly in future years.

Chinese business visitor spend

W.a.ellis is a prime central London sales and lettings agency. specialist departments include professional valuations, surveying, property management, development and investment consultancy, refurbishment and project management services to add value to any residential property.

disclaimer: this report is produced for general information only. Whilst every effort has been made to ensure the accuracy of this publication, W.a.ellis accepts no liability for any loss or damage of any nature arising from its use. at all times the content remains the property of W.a.ellis under copyright and reproduction of all or part of it in any form is prohibited without written permission from W.a.ellis.

date of publication: January 2014

lmorton@waellis.com rbarber@waellis.com tdf@waellis.com sgodson@waellis.com dwiggin@waellis.com jwilson@waellis.com

JAMES WILSONDANIEL WIggINSIMON gODSONTIM DES FOrgESrIChArD BArBErLuCY MOrTON

Lucy Morton Senior Partner at W.A.Ellis hasbeen working with buyers from the Far East forthe last 30 years. She has recently returned from atrip to Hong Kong where she met clients and gavepresentations on the London property market.“ There’s a real confidence in the London real estate market. Investors seem ‘frantic’ to buy. The liberalisation of the RMB has helped immensely and has, in part been responsible for broadening the profile of buyers. Twenty years ago buying property in London was confined to the super rich; today there are high net worth individuals – in large numbers – looking to invest in the capital. Exhibitions are a popular way to buy. People queue to get into an exhibition, having researched the area in which they want to buy, the schemes and often the developer they’ll be buying from. They’ll have their deposits ready and invariably leave having made a purchase. One and two bedroom apartments traditionally in prime central London are what they’re looking for. At the moment, buyers are increasingly investing south of the river where developments stretching from Vauxhall to Battersea are being snapped up. There is so much supply coming to the market here that I would caution buyers to take this into account when they purchase. Recent years have seen the growth of property portals, including Juwai.com and Chinese language search engines, such as Baidu. It is definitely the way the market is moving and they will undoubtedly play a greater role in the future. Education is a key prompt to residential investment. Children are attending our private schools in ever larger numbers and Mandarin now forms part of the curriculum in many of the schools. At university age, more students arrive and for many families accommodation in the private rented sector is sought. We have seen a steady growth in the number of SEA students looking for good, centrally located properties to rent. Trust is key to SEA buyers – they need to be able to trust the person who’s advising them and helping them buy. Some know London, but many don’t. My advice to would-be investors is do your homework, get a second opinion and if you’re letting, choose a good ARLA registered agent.”

Institution

Spend £m Visits (000s)

Private Sector Halls

Parent / Guardian Home

Own residence

Other rented

Other

80

70

60

50

40

30

20

10

02005

Source: International Passenger Survey, ONS, 2013

2006 2007 2008 2009 2010 20122011

50

40

30

20

10

0

-10

-20 Sterling

EuroHong Kong dollar

Japanese yen

Singapore dollar

Chinese yuan yen