One Belt One Road paved with gold: how to make money on European properties along the New Silk Road
Xi Jinping, the president of the People's Republic of China, announced in September 2013 that the One Belt One Road project is his most ambitious yet. According to the American Enterprise Institute, $340bn was invested in this far-reaching idea between 2014 and 2017. This amount has mainly come from Chinese foreign exchange reserves, but the country hopes to attract domestic and international investors in future.
The main goal of the project is to build ties between the countries of Europe and Asia. It is comprised of two parts: the Belt and the Road. The Belt refers to the overland route from China to Europe; the Road is the high seas route via the Indian Ocean. Under the project, infrastructure, power and mining industry facilities, such as railroads, pipelines, warehouses and ports, are being built and renovated. Indeed, everything that China does in these fields is automatically classified as part of One Belt One Road project, which does not have any official list of initiatives.
Apart from the evident benefits related to growing goods turnover and creating new jobs, One Belt One Road can also attract property investors. According to Knight Frank, between September 2013 and October 2017, the countries participating in the project spent over $10bn on real estate, namely on construction projects, office and retail space, apartments, logistics properties and hotels.
By various estimates, approximately 80 countries have joined the Chinese initiative. About one-third of China's partners are concentrated in Eastern Europe, which is more than in five Asian regions, the Middle East, Africa or Oceania. Under the One Belt One Road project, China acquired a majority stake in the port authorities of the Greek Piraeus and the Spanish Noatum, the construction of the Power of Siberia pipeline to deliver Russian gas to China is drawing to an end, the Trans-Asian Railway is being built to connect China and the UK.
According to Knight Frank, the Chinese project will ensure investment flow to European real estate markets rather than the developing Asian countries that cannot offer investors transparency when regulating transactions, high-quality assets, liquidity or stability. According to Juwai.com, China's largest web portal for selling property, in 2017 the country's nationals spent $25.6bn on European residential and commercial properties — 228% more than in 2016.
Which countries is China especially interested in and what types of property can investors make money on there?
China is the Czech Republic's fourth largest trading partner and the second largest importer. As reported by Knight Frank, in 2016 the cost of the Czech goods exported to China was $1.5bn, while import from China totalled $13bn. About 30 trade agreements exist between the two countries, and China Eastern Airlines launched a direct flight between Shanghai and Prague. The CEFC Chinese power company took advantage of the rapid growth in the number of Chinese tourists visiting the Czech Republic and bought several major hotels in Prague: The Mandarin Oriental, Le Palais Art Hotel and Motel One. It also acquired the large office building of Florentinum, as well as several shops and restaurants in the centre of the capital.
According to Anna Kurianovich, senior investment consultant at Tranio, the buyers of income property in the Czech Republic should consider business centres in addition to traditionally popular hotels. "Many international companies aspire to launch their offices in Prague. The reasons for this are the growing economy, low unemployment rate (the EU’s lowest as of September 2018) and cheap labour force, Ms Kurianovich explains. ‘However, Prague does not have enough high-quality office space at the moment, for which reason the rental rates are rising’.
A Chinese anchor project in Poland was the 2013 launch of a long-distance cargo railway line between Chengdu and Łódź. In 2015, the railroad line was extended to Xiamen, a port city located on the southeastern coast of China. Its construction led to a 30% increase in the volume of trade between the two countries. As for the Polish property market, the Bank of China participated several years ago in the refinancing office buildings in Poland. In late 2017, Logicor, one of Europe’s largest logistics platforms, sold its entire logistics asset portfolio valued at $14.4bn, of which 28 properties (of $640mn in value) were located in Poland.
‘The main Polish economic drivers are trade, logistics and storage of goods, which is associated with Poland’s advantageous location between Eastern and Western Europe’, Ms Kurianovich says. ‘Therefore, real estate investors should consider office complexes in three major cities — Warsaw, Kraków and Gdańsk — as well as logistics complexes and retail facilities in the central locations of large cities’.
Different sectors of the UK economy attract China, ranging from financial services and the energy industry to healthcare and real estate. In 2013, the Chinese Advanced Business Park development company signed an agreement to construct office space and residential property in the historic Royal Albert Dock. In 2017, a Chinese investor bought The Leadenhall Building skyscraper as a result of the second largest property transaction in the history of the UK. According to Juwai.com, the United Kingdom attracted about 30% of Chinese investment in international commercial real estate in 2017.
‘The main factors to be taken into account when investing in UK commercial property are the economic stability, despite Brexit, and the active growth of e-commerce: the UK is the second European sales market by volume for Amazon and the first for internet retailers like Apple, Dixons Carphone and Next’, Ms Kurianovich says. ‘Therefore, we recommend that our clients invest in offices in central locations, retail and logistics properties’.
In 2016, the Chinese COSCO, one of the largest port operators in the world, acquired 51% of the Piraeus Port Authority, a strategic point on the New Silk Road, for €280.5mn. In 2021, the Chinese company will take possession of another 16% share for €88mn. COSCO must, in the meantime, invest €300mn into the modernisation of ship repairing assets and logistics. China is also investing large sums in developing the capital’s former Hellinikon airport, a project in which the Chinese Fosun Group conglomerate is also taking part. As part of the project, residential complexes, hotels and recreation areas will be built; the operation of existing Olympic venues will be resumed, and new sports facilities will be created. The investor's interest in the Greek real estate market is largely associated with the nation’s tourist boom. According to the Bank of Greece, over 30mn international tourists visited the country in 2017. Investors believe Hellinikon will attract over a million tourists per annum in the future.
‘There is a lack of quality office space in Greece and the demand for hotel property is high. Investors with modest budgets can consider buying short-term tourist rentals that yield 5-7% per annum v 3-4% in most European capitals thanks to low prices’, Ms Kurianovich says. However, to get such a yield, you must buy now: the Bank of Greece has been observing growth in residential property prices for a second straight quarter.