Introduction

Trade between UK and China has increased in the last two decades (Office of National Statistics, 2015). This has been attributed to high growth of Chinese economy and improved relations between the two countries. Growth in trade and other areas of cooperation has opened investment opportunities for the Chinese wealthy population interested in diversifying their wealth across national boundaries. The motivation for Chinese investment in foreign assets has not been researched. This paper aims at determining the motivations of Chinese investors in UK property market.

The UK property market is a mature sector that has experienced exponential growth over the last ten years. As part of the European Union, UK is a welcoming country and is one of the most preferred destinations for foreign visitors and investors. This has created high demand for housing  in the UK. In addition, UK has a sound property legal system, a well-structured tax regime, rich heritage and superior infrastructure. Most investors view these aspects as attractive opportunities for investment.

Objectives of the research

The objective of the research is to determine the motivations for Chinese investment in UK property market. The research will examine various factors and their effect on Chinese investor preferences including age, gender, level of education, UK growth potential, cost, tax, legal, regulatory and immigration system.

Hypotheses

In order to determine the actual motivations behind preference for investment in UK property market, the following hypotheses were designed.

H1: The average Chinese of any age prefers investing in the UK property due to its high growth and income potential

H2: Chinese investors are motivated by low cost financing to invest in property markets

H3: Chinese investors in UK property market are motivated by friendly taxation policies

H3: Chinese investors in the UK property do so to immigrate.

Data Collection

The research collected primary data from 50 respondents drawn from an investment conference. Questionnaires containing three demographic questions and 10 research questions were administered on the respondents. The ten research questions had a Likert scale where respondents indicated their perception of each variable on a scale of 1-5. The respondents aged 25-55 years were asked to rank their perception of various factors as motivation for investing in UK property market.

Data Analysis

64% of the respondents were male and the rest female. A quarter of the surveyed respondents (26%) was between 46 and 55 years old while those who are younger than 25 make the smallest percentage (8%). The rest (66%) were aged between 26-46 years indicating that the majority of those who took part in the questionnaire were likely to have significant professional experience in their respective careers. 64% of respondents were in employment, 18% self-employed, 4% were students, and the rest (14%) were unemployed.

Having filled in the name, chosen the age group and work situation, the surveyed were to answer 10 assessing questions by choosing the degree of agreement with the given statements.   The following table summarizes the average scores as indicated by the respondents and genders.

 

Table 1. Average ratings for each question

Question	Average Scores
	Female	Male	Grand Total
1.Do you agree that ‘the confidence of UK’s future developmentremains high’ is a reason which can influence you to invest in UK property?	4.50	4.41	4.44
2. Do you agree that ‘the growth potential of the UK property market’is a reason which can influence you to invest in UK property?	4.50	4.44	4.46
3. Do you agree that ‘Robust demand of the UK property market’ isa reason which can influence you to invest in UK property?	3.72	4.19	4.02
4. Do you agree that ‘low cost of financing inUK’ is a reason which can influence you to invest in UK property?	3.44	3.38	3.40
5. Do you agree that ‘Strong Rental yields in UK’is a reason which can influence you to invest in UK property?	2.83	2.81	2.82
6. Do you agree that ‘Attractive tax regime’ is a reasonwhich can influence you to invest in UK property?	4.33	4.41	4.38
7. Do you agree that ‘Sound property legal system’ is areason which can influence you to invest in UK property?	4.50	4.47	4.48
8. Do you agree that ‘Loose UK building regulation’ isa reason which can influence you to invest in UK property?	2.44	2.25	2.32
9. Do you agree that ‘Well-established infrastructure conditionin UK’ is a reason which can influence you to invest in UK property?	4.22	4.44	4.36
10. Do you agree that ‘Alternative non-traditional propertyinvestment’ is a reason which can influence you to invest in UK property?	3.00	2.84	2.90

 

From the above table, Chines investors prefer investing in UK due to the potentially high development of the property market in future. Respondents of both gender strongly agreed that future growth, is a strong motivation for buying UK property with an average score of 4.44. Respondents also indicated strongly that robust demand for property informed their desire to invest in UK property with an average score of 4.02. These results indicate that the first hypotheses is true that Chinese prefers investing in the UK property due to its high growth and income potential.

Respondents indicated a low average score for low finance cost as motivation for investing in UK. The average score for the respondents was 3.44 with females having the lowest average score of 3.38. This illustrates that Chinese investors do not seek financing to invest in the UK but rather look for investment opportunities for excess cash that they have. In this light, we reject the second hypothesis that Chinese investors are motivated by low cost financing to invest in property markets.

Respondents further indicated a high average score for friendly taxation as motivation for investing in UK. The average score for the respondents was 4.38 with females having the lowest average score of 4.33. This illustrates that Chinese investors seek to lower their taxes payable on their incomes by investing in foreign property markets such as UK. In this light, we accept the third hypothesis that Chinese investors are motivated by low tax on their income.

Lastly, respondents indicates a low preference for immigration to UK as the principal motivator of investment decision. Contrary to the conventional notion that property buyers look seek immigration opportunities in target countries, results indicated evidence to the contrary. The following table indicates the respondent’s responses towards immigration.

Table 2. Immigration choice by gender

Preference	Female	Male	Grand Total
Immigration	5	13	18
no	13	19	32
Grand Total	18	32	50

Only 36% of the sampled population indicated preference for migration as the principal motivator of the investment decision. Females had the lowest preference for moving to the UK with a 28% preference rate while males had 33% preference rate. This leads to rejection of Hypotheses 4 that immigration is a major motivator of investment in UK Property.

Chinese Investments in Figures

“Europe’s energy, automotive, food, and real estate sectors attracted the most Chinese money” (Anderlini, 2015). For example, as for the UK real estate, London is a popular place with the Chinese businesspeople to invest in. In particular, hotels, business parks, and commercial spaces are the ones that happen to be built and developed the most. In addition, besides the multi-billion financing already provided, even more projects are a part of both the Chinese’s and the British’s plan.

Despite such an eager attitude of the Chinese, according to Anderson (2015), a business reporter on BBC, the UK is not the first place where the Chinese would invest in. Instead, the USA, Australia, Canada, Nigeria, Russia, and several other countries appear more frequent in the terms of the investment partnership, with the US being the leading one. In particular, “the U.S., Germany, and Israel are three popular destinations for Chinese outbound acquisitions” (Gu, 2015). On the other hand, considering such factor as tense relations between Japan and China, the latter one is likely to “challenge US supremacy as it races to overtake it as the world’s largest economy” (Pinsent Masons LLP & Centre for Economics and Business Research, 2014). This, in turn, gives the UK an opportunity to be a proper “destination for Chinese investment going forward” (Pinsent Masons LLP & CEBR, 2014).

In 2015, the research provided by Foreign Direct Investment (FDI) resulted in stating that 34% of the market shares belong to Europe (The Financial Times Ltd., 2016). Such a high percentage, in turn, proves the reliability and security of the UK market and investment system. Hence, China has become a supporter of investment in the UK property and is now a representative of “the UK’s sixth-biggest export market”, using 3.6% of its both goods and services (Inman et al., 2015).

At the same time, the UK is mostly welcome to the eastern investors, although they are not much influential. Thus, due to the development of the country, nearly 500,000 new jobs were opened with 84,000 as the result of the investments. With that in mind, only less than 5,000 vacancies were provided by the Chinese that, despite a relatively small number, is a benefit while “an unemployment rate [in the UK] hovers just above 4% to the dangerously high 10%” (Inman et al., 2015). In addition, while developing a new financial district in London and being an owner of 40% of the area, the Chinese group in charge allows 30,000 of the citizens to get employed.

Data Analysis and Reasons for Investing in the UK Property

Considering the global statistics, several factors play a crucial role for China to invest abroad. Among such, there is the quality of the business environment that, in turn, depends on various taxation regime, sound property legal system, and a promising future. These also anticipate the possibility for long-term infrastructure investment and the availability of both material and immaterial returns, including such as importing products and intellectual property, that is, a necessary profit.

Taking into consideration the results of the survey, it is obvious that the investors are mostly attracted by the confidence of the UK legal system and future development. Thus, the responders feel legally secure in case of investing in the UK property, as it allows to set up a long-term agreement with a rewarding outcome due to the attractive tax regime. Therefore, such options as sound property legal system, the growth potential of the UK property market, and the confidence of UK’s future development remaining high have gained the most agreement of the responders.

Among the questions answered, the option of UK sound property legal system has received the majority of strong agreeing. The reason is that protection right on the UK property is strong and secure for both local and investors from abroad. Thus, the law of property “Act 1929” and “Land Registration Act 2002” in the UK allow transparent interest transferring that provides a legal protection of the owners’ assets.

Considering the fact that the United Kingdom belongs to the Group of Seven, which means its economy is strong and secure, 72% of businesspersons consider contributing to the UK markets (EYGM Limited, 2013). In addition, Halifax UK Housing Market Outlook for 2016 (2015) states that the UK price confidence index continues to stay positive, although the decline in mid-2015 made property prices increase and remain higher than in 2014, in particular, the prices of property in London have increased by 9.2%.

At the same time, such option as non-traditional property investment does not seem a proper reason for the surveyed investors to finance the UK property. The reason is that the UK real estate market has recently started facing price increasing that proved the high demand for such property while the supply is small. Thus, it is obvious that people will feel more secure with those areas that are more popular among others, even if it provides the price increasing, rather than would prefer investing in less popular objects and risk.

In addition, loose building regulation in the UK is also of little importance when explaining the motivation of the Chinese for investing in the UK. The reason is that the UK, by offering a variety of investment opportunities, makes the incoming funds flow into smaller markets, such as technology advancement, media, fashion, and education. This, in turn, requires various facilities that must meet the need of each of the areas.

Lastly, strong rental yields in the UK also do not seem attractive to the investors. Eastern businesspeople tend to aim at long-term agreements that will remain stable and appear rewarding. However, as tenant demand continues to grow, property owners have noticed an increase in the prices. Therefore, as the rent is becoming more expensive, rental yields will not be appealing to the investors.

Thus, several changes have been occurring in the UK infrastructure and are rather dangerous in terms of the country’s funds but appear rewarding and encouraging for Chinese investors. In particular, the bills that have risen in absolute levels along with “the sustained decline in households’ real incomes” present in the UK make the spendings of both the country and the citizens increase (Inman et al., 2015). Thus, “spending on infrastructure related essentials in 2013 constituted about 10% of disposable income for a typical UK household” (Pinsent Masons LLP & CEBR, 2014).  Considering nuclear power area, “over £100bn is needed to update old power stations and introduce new low-carbon power”, as stated in The Guardian (Inman et al., 2015). Therefore, despite conducting efficient taxation regime and having the currency of the biggest value, the UK is in the need for investments.

In particular, in order to combat such economic issues, certain changes from Parliament must be implemented, including a rise in business funding and novel financing models. However, the longer the situation remains the same, the more welcome Chinese investors are to contribute their finances to the UK property. As a result, taking into account the fact that the Chinese are “with appetite for long-term assets”, nearly half of Chinese FDI into the UK is likely to flow into its infrastructure in the period from 2014 and 2025, as stated in the report (Pinsent Masons LLP & CEBR, 2014). Therefore, “Chinese investment is set to represent an important input to the mission of improving UK infrastructure” (Pinsent Masons LLP & CEBR, 2014).  With that being said, China’s contribution to the UK budget is beneficial for the growth potential, future developing, and the tax regime of the UK, which, by being saved and improved by the Chinese, attract even more of them.

Forecasts

As for the period of 2005-2014, China does not aim at a particular market but rather considers the variety of opportunities in different areas of the UK, “which offer a wide range of financial products and investments” (Pinsent Masons LLP, & CEBR, 2014). Thus, over the noted 9-year period, the UK earned almost $24 billion on investment. The authors of the report (2014) predict a rise in Chinese outward FDI from $100 billion in 2013 to almost $600 billion in 2025. Additionally, they expect the UK’s average share of Chinese outbound FDI to rise from 3.7%, as present in the above-mentioned period of time, to 10% by the year 2025. That is, investments are expected to increase in number and slowly lead China to owning a great part of the UK.

“Real estate is also forecast to receive a considerable share of inward Chinese FDI, averaging 24% of total FDI between 2014 and 2025” (Pinsent Masons LLP & CEBR, 2014). The reason  is that London is being made a global economic center that makes the country attractive for foreign businessmen. Moreover, 36% of the surveyed have expressed their willing to invest in the UK property in order to immigrate to the UK that proves the presence of  businesspeople’s desire to move to the country. Such a growth in the population provides a negative influence on the country’s supply and, hence, makes it not meet the demand. This supports the statement that, despite the current problems in the UK economy, China’s financial assistance will help the UK’s markets remain stable and profitable.

The investors are also not likely to change the objects of investments to non-traditional property but rather focus on such areas as energy and continue contributing to the development of London as a business city. This, in turn, supports the idea of the UK being a promising destination for the Chinese to invest in, as well as remain a secure country despite the rise of the prices.

Conclusion

Overall, according to the conducted survey, the investments of China are mostly motivated by the UK sound property legal system, the growth potential of the UK property market, and the confidence in the promising UK’s future development. Moreover, such financial contribution definitely appears beneficial for both China and the United Kingdom, as it helps the latter one to remain stable economically and keep the high quality of the property market.

 

 

References

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