Chinese investment in to the UK property market over recent times has been steady thanks to strong capital growth and rental yields. There were obvious and justified jitters when the UK announced its intention to leave the European Union in June as Sterling crashed and business panicked. Thankfully, these were short term reactions and the economic performance for the UK has far outstripped the expectations of many following the referendum.
News appearing on the business pages has been mainly positive. Figures for manufacturing, stocks and shares, house building and retail have so far shown strong progress despite a reticent atmosphere among economists.
As Sterling continues to plumb historic depths, though, this may allow conditions for a perfect storm for UK property as economists have warned of a potential crash in the Chinese economy. China’s economic growth remained stable in the third quarter, all but ensuring the government’s full-year growth target is met and opening a window for policy makers to deliver on vows to rein in excessive credit and surging property prices.
However, according to financial researchers at Rabobank in Hong Kong, “it’s amazing what housing bubbles and crazy debt increases can achieve”, implying that growth is not sustainable and that the alternative is nothing anyone wants to think about. GDP rose 6.7 per cent in the third quarter from a year earlier, matching the median projection by economists surveyed by Bloomberg, and right in the middle of the government’s 2016 goal of 6.5 per cent to 7 per cent growth. Services industries paced the expansion in the first nine months of the year, expanding 7.6 per cent.
Shares in Shanghai and the Renminbi were little changed and Wednesday’s reports also showed further evidence of diminishing disinflationary pressures in the world’s second largest economy, with the GDP deflator - a broad measure of costs - rising 0.74 per cent for the first nine months of the year, the quickest pace since 2014. That comes on top of figures last week that showed the first gain in factory-gate prices in China since 2012.
The property market in China may now also see weakening as the government intervene in order to halt a bubble situation. At least 21 cities have introduced purchase restrictions and toughened mortgage lending since late September, reversing two years of easing to support home buyers. Goldman Sachs has said more tightening is likely to follow if price keep soaring, while Citigroup Inc. estimates shrinking demand may lead sales’ volume to contract in the fourth quarter.
All this coupled with the weak Sterling may mean that Chinese investors seek more stable and reliable property markets such as those in Manchester, Leeds, Liverpool and Sheffield where strong rental yields have been recorded as well as significant capital gains. The Northern cities are showing up the London boroughs in terms of property investment, as high value areas in the capital continue to show very underwhelming figures.
If the success of Chinese investment in Manchester is any yardstick to judge a possible increase in investment then it could be a very happy relationship between the wider UK’s property market and Chinese investors.
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