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August 25, 2016

Chinese investors, including developers, have spent billions on European football clubs, reaping dividends from instant global branding and recognition, which is subsequently leading to real estate investment opportunities in the region.

In recent days, as Brexit takes a backseat, British news has been dominated by sport, due to the success of Team GB (Great Britain) in the Rio Olympics, and the ever anticipated start of the English Premier League (EPL) football season.

However, one headline stands out – the reported multi-million pound bid by Everbright, the Chinese real estate investor, and private equity firm PCP Capital Partners, for Liverpool Football Club.

While neither side has confirmed the deal, the recent spending spree on European players and football clubs by China-based companies has grabbed the attention of worldwide media.

China’s onslaught into the European football scene gathered pace in 2014 after President Xi Jinping, a Manchester United fan, unveiled his strategy to make China “a world football superpower” by 2050. Xi’s reported aim is for China to qualify for the World Cup, to host the event and, finally, one day to win it.

“Piggy-backing on the world’s most popular sport, Chinese companies and their brands have made it onto the global stage via strategic acquisitions of football clubs especially in the UK & Europe,” says Eric Pang, Head of JLL’s UK Capital Markets China desk. “This has mirrored the Chinese outbound real estate investment globally”

Playing the long game

At present, Chinese groups have stakes in UK clubs, West Bromwich Albion, Aston Villa, Wolverhampton Wanderers and Manchester City. In Europe, they have interests in AC Milan, Atletico Madrid and Inter Milan and the United States, New York City Football.

These investments have totaled over US$1 billion in the last 2 years.

Among the notable deals is billionaire Wang Jialin of Dalian Wanda Group’s US$52 million investment for a 20 percent stake in Spanish football club, AtleticO Madrid, last year. In March this year the group struck a deal with FIFA to sponsor the next four World Cups for an undisclosed sum.

“This developer-and-football-team combination directly contributes to a company’s brand and success,” explains Darren Xia, Head of JLL’s International Capital Group in China.

In the early 90’s, Dalian Wanda saw brand potential in backing a local Chinese football team and co-facilitated the creation of the country’s first professional football team in 1994, explains Xia. This has helped Wanda to become a household name in China. “Now they want to duplicate this same strategy in other countries,” says Xia. “Acquiring the shares in the Atletico Madrid was a first step.”
“These positive associations with football clubs have helped to attract and promote local investment into real estate and infrastructure – the core business of Chinese developers,” says Pang. “Sport has helped to break down business barriers and boost links with cities and regions.”

A game of two-halves

And the football-fuelled investment is paying off for both sides.

As China increases its stakes in European football, its real estate investment into Europe has climbed in tandem. Last year, China’s real estate investment into Europe hit US$4.85 billion with investors venturing into second-tier cities in the region.

Manchester, for instance, the home ground of Manchester United and Manchester City, has become increasingly popular with mainland Chinese investment. In the past year, China’s Chongqing Jinstar Real Estate Development, Hualing Industry and Trade Group, and Shanghai-based PGC Capital have all agreed to real estate investments in the city.

Among those developments, state-owned Beijing Engineering Construction Group is investing in Manchester’s Airport City, a new urban district which, with street signs in Chinese and English, is designed to provide a hub for mainland Chinese firms setting up in the city.

The resulting surge in Manchester home values has already made the city’s residential sector a rival to pricier London for Chinese investors. Average home prices in Manchester are set to increase 5.5 percent in 2016, according to JLL data, with a 26.4 percent rise predicted by 2020.

In China, officials have declared football a compulsory part of the national curriculum. About 20,000 football-themed schools are to open by 2017 with the goal of producing more than 100,000 players. Study-abroad programmes have been rolled out, as well as initiatives to lure 35 international stars to China in the next year. All these point to requirements for sporting infrastructure, from which Chinese developers will stand to benefit.

For now, taking the world’s most popular sport to the world’s most populous country with a football-mad president is a hat-trick that is good for clubs, good for fans, good for potential capital flows and good for Chinese real estate groups.

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Darren Xia

rachel.smylie@ap.jll.com

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