Why Asian investors should set their sights on London
The decision by Chinese authorities to allow insurance companies to invest up to 15 per cent of their assets overseas is good news for both Asian investors and strong property markets such as London.
Under new rules from the China Insurance Regulatory Commission, giant insurers, such as China Life, AIA, China Pacific and Ping An, will be able to expand offshore investment activities substantially.
These companies’ assets were valued at six trillion yuan ($HK7.39 trillion or £600 billion) at the end of last year, which means that potentially up to £90 billion could be invested overseas this year.
With its strong capital growth, reputation as a global financial hub and the currency advantage currently being enjoyed over the pound by Asian economies, London is an attractive market for foreign investors.
The prospect of rental growth, established legal structure, and ‘safe haven’ status amid the problems in the Eurozone also provide compelling reasons why investors should consider setting their sights on London.
Yields - the income return on an investment - on ‘safe haven’ government bonds have fallen to historic lows, making London offices at 4.0 per cent in the West End market and 5.25 per cent in the City market comparatively attractive.
At the time of writing, ten-year bond yields for the UK are at 1.82 per cent with US bonds close to 1.65 per cent and French bonds are circa 2.15 per cent.
Moreover, London offices offer the prospect of rental income uplift as the economy improves.
Prime office rents have either stabilised or started to rise in the majority of European markets. Rental growth has been led by London and Paris, the continent’s two premier markets.
Prime rents in the West End Core, which includes the areas of Mayfair and St James’s, have been on an upwards trajectory since 2009 and are projected to surpass the 2007 high of £110 per sq ft to £120 per sq ft by 2016.
The City is also experiencing strong rental growth, which is expected to continue for at least another four years – a major draw for investors who are interested in the leasing market.
Cross border investment
Overseas investors have poured billions of pounds into property into the UK capital as they bid to find investments away from the volatility of the financial markets and diversification from the dollar.
Foreign purchasers have spent around £30bn (US$50 billion) in London over the past five years, edging ahead of closest rivals Paris and New York, which have seen an inflow of £16 billion (US$25 billion) and £12.5bn ($20billion) respectively, during the same period to commercial property.
In these uncertain times, London commercial property continues to offer competitive and relatively safe options, particularly for overseas investors.
The current currency advantage and the prospect of rental growth should place central London at the top of the list for investors looking to purchase assets overseas.