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Global Market Crash Destabilise Foreign Investments – Can London remain a Safe Haven for Investors?

Industry Developments
Global markets

Global Market Crash Destabilise Foreign Investments – Can London remain a Safe Haven for Investors?

Global markets are on a roller-coaster ride. Last month, several stock exchanges recorded their biggest one-week loss since 2008 amid fears of a possible Chinese sell-off. 

The recent stock market collapses have caused investors to raise questions about the strength of the global economy. Market watchers do not expect the economic crises of 1997 or 2008 to repeat because of the reforms undertaken in their aftermath. They have, however, warned that if turbulence continues to emerge from China, it will take its toll on the global economy. If that happens, emerging economies are more likely to bear the brunt. 

The Shanghai market hit its peak on 12 June this year. Within barely 10 weeks, it hit its lowest point in August, when indices lost 40 percent of their value. What is particularly worrying investors is the fact that these sudden currency devaluations are not an isolated incident. 

According to a key report published on Friday, China's factory output is now at its lowest level in 77 months.  The worry over China's economic health triggered a stock sell-off all over the world. That sell-off caused the benchmark Shanghai Composite to fall by more than 8 percent. International investors, especially those in Russia and Middle East no longer believe that investing in China is a wise move. Recent volatility in the Chinese stock market corroborates the general concerns about the health of the Chinese economy. If China's oil consumption also slows down, oil exporters from Russia and Middle East will be hit hard. 

Meanwhile, the crisis in China may give a boost to the real estate sector in London. Safe-haven international property markets like London have become quite popular with wealthy Chinese buyers. London real estate is already superhot and now the city is seeing a surge in interest as wealthy Chinese investors are seeking to capitalise on the safety offered by London.

“There is anecdotal evidence that Chinese buyers have intensified their interest in safe-haven global property markets, including London, as a result of the recent stock market volatility,” said Tom Bill, the head of Knight Frank London Residential Research.

Now that more wealthy Chinese are investing overseas, this development has assumed the proportions of a capital movement. China has been seeing the biggest outflow of high-net-worth individuals since 2000. During the last 14 years, as many as 91,000 affluent Chinese applied for second citizenship. They are seeking to buy overseas property and it has caused prices to escalate in destinations like London. Most of these people who have net assets worth US $1m or more are moving to Britain, Singapore, Hong Kong, and U.S. Chinese investors buying foreign property have been criticised by local buyers. Some buyers in London have blamed them for the soaring property prices in London. While that is true to a great extent, London can benefit from this surge in interest in its property market. 

London needs a consistent self-sustaining development model to react and capitalise on this volatile inward investment. In the absence of that we risk a ‘boom and bust’ scenario where we will have to contend with unfinished projects of substandard quality. The government must ensure that there are robust check points in place during long term construction projects. Otherwise, it will lead to the construction of poor quality infrastructure and buildings which won't last more than 50 years. 

A fast growing economy needs solid infrastructure and buildings as its foundation. It also needs high speed internet connectivity and communication systems in addition to the fundamental power, water, and heating systems. The economy will fail in the absence of a solid infrastructure. 

Foreign investment plays an important role in transforming British metropolises into international cities. This is particularly true in the case of London, which has attracted huge amounts of foreign investment. The British government has created different forms of development zones to attract foreign investment inflows. They serve as platforms that fuel entrepreneurial journey. 

London is a hot favourite with foreign investors looking to buy property because it is widely regarded as a safe destination for international investors. But London also has many more things going for it: 

  • London has the most diverse and best workforce in Europe. 
  • Office hours in London overlap with those in countries that collectively produce 99 percent of the world's total GDP. 
  • London has the reputation as the best city in Europe to do business. People investing in London can benefit from low cost legal services, flexible employment laws, capital gains tax relief and entrepreneurs' visas. 

These aren't the only reasons that have made the city a favourite with investors. London is the most accessible city in Europe with low cost air and rail links to global territories. A base in London will give investors an access to 8 million Londoners and 500 million Europeans. London is the showpiece of Europe and is of paramount importance in many global strategies.