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Chinese investments in Europe increase – opening up new investment destinations

 

Al Mazaya: “New real estate destinations and options in Europe raise the value of foreign investments”

European real estate markets have a lot of advantages for foreign direct investors with a largely well regulated and investment-friendly environment that positions European assets and business sectors more favourably than many other worldwide locations.

It is certainly clear, from Al Mazaya’s Report, that many high-net worth (HNW) investors from the Middle East have placed significant investment across the continent, over the last decade. Many assets and holdings in these portfolios reflect aspects of prestige and affluence, as well being a long-term safe haven for the appreciation of value on assets.

Property prices in European markets are typically stable and consistently offer moderate growth rates, therefore offering safe investment positions in virtually all types of economic climate. In addition to this, GCC investors have increasingly demonstrated an improved ability to deal with applicable laws and regulations, thereby curbing and avoiding investment risks, scams and frauds that could cause any direct or indirect loss of investment.

According to current data, the property market in Europe, particularly in the major cities, is going through a period of increased demand and soaring competition. Most recently, Germany took the UK’s mantle as Europe’s most appealing country for real estate investment, ending a two-year British “reign”. Based on GCC foreign investment figures, 17 per cent of investors chose Germany as the continent’s top territory for property investment; the UK dropping into second place with a 15 per cent share.

Clearly, the UK real estate market has lost some its appeal due to weaker economic growth projections, announced recently by the Chancellor of the Exchequer, as well as there being an element of caution being applied ahead of Britain’s upcoming vote on its membership with the EU. That aside, London remains the most attractive city destination for real estate investors coming from the European, Middle East and African (EMEA) regions.

Emirati investment in Europe grew by 15 per cent, in the first quarter of 2016, with UAE investor sentiment set to diversify and increase on purchasing transactions within the Euro Zone. Reduced pricing and diverse payment facilities in the 19-state currency zone’s real estate market is, therefore, expected to increase interest and subsequent values in European real estate investment – further encouraging foreign investors to buy properties on the continent.

Al Mazaya’s Report highlights many advantages of real estate investment in Europe, including a multitude of options in both the ready-to-move-in properties and land plots. The reducing prices in many cities and locations are certainly a catalyst for attracting more foreign investors, with the total value of investment and cash flow, transferred from Middle Eastern investors into Europe, estimated to be USD 14 billion, in 2015; USD 3 billion of which represents the share of real estate investment. With new countries and locations being added to the list of favourable destinations, investor options are also expected to increase this year. The launch of a growing number of new projects – at reduced prices and in new locations – further reinforces the attractiveness of these markets, says Al Mazaya’s Report.

Above all else, the need to diversify the risk of an investment portfolio is a key reason behind the appetite for investment abroad. Return on investment (ROI) is the main factor when it comes to selecting the type, volume and duration of an investment.

Al Mazaya’s Report states that the UK real estate market is currently going through a great deal of challenges due to political and economic uncertainties and so is “losing its shine” compared with competing states on the European mainland. In addition to this, the UK is also suffering from a diminished ability to compete with a number of international real estate markets, with Dubai and Turkey just two examples of this. With the outcome of the UK-EU referendum vote looming, investors may be choosing to wait and see whether existing and planned investment in the UK market needs to be revised or simply held back until more clarity is available.

The UK leaving the EU will initially add a level of investment uncertainty that could result in a negative impact on international investors’ decisions, the overall business climate and the need to reassess and forge new commercial ties with the EU. This may prompt a reduced amount cash flow into the country, with investors also likely to reassess their investments in UK’s stocks and bond markets.

The total volume of the GCC’s investment in the UK was estimated at USD 130 billion, in 2015, with particular focus lent to its real estate, banking and financial sectors. However, despite the buoyancy and resilience of the British economy – currently the fastest growing market in the West – investment may drop due to a range of surrounding pressures, with the real estate market being expected to be the biggest loser.

A recent British government decision to increase regulation on buy-to-let properties will probably lead to a stampede of investors leaving the UK property market and to a short-term oversupply of ready-to-move-in residential units for investment purposes. After the US Federal Reserve’s recent decision to hike interest rates, the Bank of England is expected to follow with a similar move soon. Ultimately, this will raise mortgage rates, causing an inevitable decline in demand.

Additional restrictions imposed on money transfers by individuals have also contributed to the reducing appeal of the UK real estate market to foreign investors; therefore, the UK risks losing more of its status as a safe haven for wealth. Coupled with this, the British real estate market is going through a period of price inflation, which also hurts its appeal to investors. This is particularly true from investors based in the oil-rich countries where declining oil prices are providing their own domestic challenges and economic uncertainties.

Al Mazaya’s Report does note and recognises the increasing level of Chinese investment in Europe, in light of the EU and China’s ongoing development of economic ties. This is trend that is expected to improve and greater align the ambitions of the first and third largest economic zones in the world. (As a combined economic zone, the EU is larger than the US economy.)

The volume of Chinese investment in EU countries reached EUR 14 billion, by end of 2014, while the avenues of investment in China are also proving attractive for European companies. In the same context, Chinese investment expanded to record levels, in 2015, with Europe and the USA the main destinations. The top European destinations were Italy, France and the UK, respectively. Industry-wise, investments were largely focused on the real estate, automobile, finance and IT sectors.

Expanding Chinese investments in Europe and the Middle East are clearly targeting long-term returns through investments in housing and infrastructure projects, in addition to diversifying investment and reducing risks in the face of an economic slowdown in China’s domestic economy.

This week’s Al Mazaya Report highlights the growth indicators in real estate transactions in Europe and the Middle East region, which are seen as the outcome of positive signs being attributed to a growth in real estate investment this year. Therefore, 2016 is expected to be a year of thriving and fruitful business in many areas, particularly in the East European and Middle East regions.