Wealthy mainland Chinese investors who have made their money in the prime Central London market are now diversifying their portfolios to include properties and land in rural England.
Brokers have reported a surge in the number of mainland Chinese inquiries for commercial farmland and country estates. Farmland has attracted the most interest, with investors recognising it as a marketable income-producing asset at a time when other forms of investment such as the stock market remain volatile.
'Capital growth on farmland in the UK has outperformed every other asset class except gold in the past 10 years,' says Clive Hopkins, head of farm and estate at Knight Frank. The price of farmland in the UK has almost trebled over the past decade, with most of the growth coming in the past five years. Hopkins said land yields now were 3.5 to 4 per cent.
Bare agricultural land is worth about GBP6,000 (HK$74,000) an acre, about three times as much as 10 years ago, according to the Knight Frank Farmland Index, which tracks the average price of bare commercial agricultural land (with no houses or other buildings) in England.
There are many advantages to owning farmland, according to brokers, but the biggest attraction by far is the potential of the agriculture industry.
As the world's population is predicted to top 9.1 billion by 2050, one third more than today, food production will need to rise dramatically to meet demand. In particular, annual cereal output is expected to rise to about 3 billion tonnes from the current 2.1 billion, and annual meat production to rise by more than 200 million tonnes to 470 million tonnes.
For many, there is no better place in Europe to invest in farmland than the UK, which possesses one of the best climates to grow wheat and other soft commodities. Its proximity to ports also promises an accessible export market, while transparency and rule of law guarantee clear title deeds and protection of land ownership, says Ian Hepburn, a partner at the independent buyers agency Private Property Search.
Farmland with the most investment potential can be found in southern England in areas like Suffolk, Essex, Norfolk and Sussex, because farms there are typically larger and are of higher quality. With less rainfall, farmers are better able to combine crops such as wheat and barley.
Chinese investors are taking a hands-on approach to sourcing arable land, say brokers. They will typically work through their family office or with an international agent, and will most certainly visit the land before closing the deal. The lot size for purchase starts at 500 acres for commercial farming, though most investors are likely to want at least double that size.
Simon Grier-Jones, head of land at Hamptons International, said: 'Chinese investors all share one commonality: their purchasing decisions are always well considered and well planned. They understand what they are getting themselves into.'
Once the purchase has been made and the land contracted out to British farmers who will run the farm for an operational fee and a profit sharing agreement, investors are happy to sit back and wait for their land to appreciate.
'This is not a quick in-and-out type investment. It is for people who plan to hold on to their asset for the long term,' Hepburn said.
Aside from driving up the price of farmland, international buyers have also enabled more British farmers to expand their farming ventures by taking on contract farming work in an environment where they would otherwise not be able to afford to buy more land.
Prices are likely to rise further still, with brokers anticipating the re-emergence of institutional investor interest over the next 12 to 18 months.
According to a Knight Frank research report, the value of farmland is likely to rise 7 to 10 per cent in the first half of this year, and remain steady for the rest of the year as an increase in supply pegs back further growth.
'We expect investors to remain interested in farmland,' Hopkins said. 'It is becoming more well-known as an asset class with a proven track record of capital growth. Unlike many other investments, it can also offer lifestyle opportunities that can be enjoyed, as well as a decent income.'
Meanwhile, the English country estate is emerging as a niche market, attracting a small elite crowd that sees the quintessential estate as a trophy purchase.
About 4 per cent of Knight Frank's clients looking to buy country estates are Chinese, though agents believe this is only the beginning of the curve, with the percentage likely to enter double-digit territory in the near term as wealthy mainlanders grow wealthier still.
Those who can afford such a luxury purchase are not driven so much by its investment potential but by the amenities and lifestyle it offers, for instance, deerstalking, salmon fishing and shooting. Country estates are rarely rented out, according to agents, and are kept for self-use part-time or full-time.
'The quality of the house, its architecture, history and provenance and its specialist focus are important features for any buyer,' Hopkins said, adding that the starting price for an estate in a good location was about GBP5 million.
Good estates in the best areas with residential and sporting appeal, such as a manor-type house with a few cottages and farm buildings and about 1,000 acres, in the south or southwest of England, have trebled in price over the past decade, and are likely to rise a further 40 to 50 per cent in the next five years, according to Hepburn.
'Though the land on these estates is not farmed as intensively as commercial farming, these properties are considered a unique asset class, and if you get the right one, they will always make money without fail, sometimes double or even triple the price you bought it for,' Hepburn said.
Location plays a pivotal role in the value of these estates. They must be accessible to London, within 160 kilometres from the capital, brokers say. Wiltshire, Oxfordshire, Gloucestershire, Hampshire, Berkshire, Dorset and Somerset are considered some of the hottest areas in which to buy.
To put into perspective how influential the location can be, Hepburn says that although the value of farmland in these areas is comparable to other parts of England, the price of the house can double.
Though it is the super rich who have the means to purchase such estates, it is the Chinese middle class, growing in prosperity and number, who are fuelling the bulk of purchases overseas.
Frustrated at being priced out of first-tier cities such as Shanghai and Beijing, as well as restricted by the government's attempts to curb speculative buying, China's industrialists and entrepreneurs are looking elsewhere to broaden their investment portfolios and leverage on the strong yuan.
Sherry Madera of Five Continents Property, the only property agency focusing exclusively on bringing overseas properties to mainland Chinese investors, said: 'The driving factors for these purchases usually involve some tie to the UK; the children are studying in England, they have business interests here, are seeking permanent residency or alternative residential status, or for tax and investment reasons.'
Chinese investors generally flock to new-build off-plan properties in areas of London such as Docklands, Riverside and Canary Wharf, because they relate easily to these new projects, which are not too dissimilar to what might be found in the heart of Shanghai or Beijing, and the offer can be easily understood.
Overseas buyers make up almost two thirds of the new-built prime London market last year, of which over half were from Asia Pacific, with a significant portion from mainland China, according to research by Savills.
'As far as mainland Chinese investors are concerned, we are only at the tip of the iceberg. Chinese investors are 10 to 15 years behind Hong Kong buyers, who have been buying properties in the UK, particularly London, for some time. The market is just beginning,' Madera said.
Property developers have been quick to respond to the interest, and have begun to market heavily to Chinese buyers in the past two years, stepping up the number of exhibitions in Hong Kong and on the mainland and running seminars and events to stimulate interest.
Yolande Barnes, head of residential research at Savills, said: 'The accelerated growth of mainland Chinese buyers in London's new-built market can also be attributed to a change in marketing strategy, driven partly by the inability of developers to find buyers in the UK.'
New schemes in London hold a premium because they are very often offering a distinctively different product in terms of higher specifications, better interiors and layouts, and higher standards of service, Barnes said. However, that premium can very often translate into a discount in a downturn market, she said, as developers try to offload stock to pay off their debts.
New-build schemes in prime areas of London are reporting yields of around 3.8 per cent, and capital growth of 8 to 14 per cent, Barnes said.
Though the bulk of buying is concentrated in London, Madera says Chinese investors are becoming more curious about different markets. Five Continents Property, which was set up two years ago, has offices in Beijing, Nanjing, Guangzhou and London, and launched its first apartment project in Berlin on the mainland market towards the end of last month.
The company chose Berlin to debut its first European apartment project because of the strong German economy and the German capital's average yield, currently at between 4 and 6 per cent. The tight housing supply is expected to push up values in the next few years, Madera said.
'We also see it as part of our job to test the market and to gauge what the market is ready for. China is constantly changing and moving,' she said.
Something that has, at times, hindered the company from launching a wider variety of projects is Chinese investors' strong belief in feng shui.
'For example, we had to turn down a beautifully converted block of apartments in a Victorian building that was once a hospital because we knew it just wouldn't sell,' Madera said. 'We have also had to change flat numbers to avoid the unlucky number four. The Chinese remain deeply superstitious, so we take this into account when deciding which properties to bring to China.'
The agency aims to bring around three projects to the Chinese market each month, and also runs small group seminars designed to further educate investors about the potential of different housing markets.
The company has seen some mainland interest elsewhere in Europe - golfing residences in Cyprus, holiday villas in the south of France and apartments in Paris - but buying in the rest of Europe has been much slower to develop because of concerns over developments in the euro zone, unfamiliarity with laws, and scepticism over levels of transparency, in addition to language and cultural barriers.
'The Chinese market is huge, and there is massive interest in investing. But at the end of the day, when the priority list comes out, properties in the rest of Europe will generally be a harder sell unless there is a compelling reason otherwise,' Madera said.
This attitude is expected to shift, brokers say, as Chinese investors spend more time in Western countries and become savvier investors.