Chinese commercial property investment plummets 60 per cent

Chinese commercial property investment plummets 60 per cent

2 March 2018

Real estate agency Cushman & Wakefield’s latest update on Chinese capital flows shows Chinese investment in Australian commercial property tumbled by 60 per cent to just $2.83 billion last year, reports The Australian.

The report: Chinese Capital Flows. Where to from here? revealed total 2017 investment comprised $1.97 billion into built assets—mainly office and retail properties—which was a 60 per cent drop and $853 million in developments sites, being a decline of 72 per cent.

Total Chinese property investment in Australia has fallen from $6.97 billion in 2016 to $2.83 billion in 2017.

Chinese investments in Australia have been hampered by Chinese government curbs on capital flows out of China, risks from residential oversupply in some Australian markets, tougher lending conditions, and increased surcharges on foreign buyers, which have turned away many foreign institutional and retail property buyers, notes the AFR.

Citing the Cushman & Wakefield report, the paper says that sub-$50 million deals are the “sweet spot” with Chinese investors in 2018 and beyond.

“Although there is great diversity in the individual entities that actively invest in Australia, they broadly fall into two investor types — private investors or real estate operating companies or developers — there is comparatively little investment by Chinese Unlisted Funds and Pension Funds,” the report says.

“As a result, there is a distinct sweet spot where most investment occurs which, contrary to public perception, is below $50 million.”

Despite the weaker investment levels, Australia remains a firm favourite among mainland Chinese investors, ranking second for the third consecutive year behind the United States.

“While we have seen a significant drop in China outbound investment into Australian real estate over the past year, Australia remains as one of the top global destinations of choice for Chinese investors,” said James Quigley, Cushman and Wakefield’s head of capital markets Australia and New Zealand.

“Top Chinese investors are telling us that they still greatly favour the Australian market, but with regulatory changes and fierce competition for top assets, deal activity is expected to weaken. That said, we are seeing rising investment volumes from Hong Kong with further growth expected as Mainland Chinese investors look at alternative avenues to invest.”

The Sydney Morning Herald says industry players expect the favourable office and retail investment sectors to keep attracting Chinese cash, but at reduced levels and from different regions.

For example, while mainland Chinese investment has decreased, investment from Hong Kong Kong has increased by 20 per cent, rising from $918 million to $1.1 billion in 2017. This is expected to increase further during 2018 as mainland Chinese investors seek to reallocate capital via Hong Kong.

The paper also expects that as Chinese government regulations tighten, there will be more joint venture deals struck similar to the China Communications Construction Company’s (CCCC) acquisition of John Holland, and China Investment Corp’s agreements with Investa and Goodman on past purchases.

In another example, Chinese real estate group Ping An has tie-ups with Lendlease and Mirvac on Sydney projects and it also a broader connection with funds manager QIC.

Lendlease in 2016 secured Ping An Real Estate and Mitsubishi Estate Asia as development partners for its $1.5bn Circular Quay Tower.

The biggest market for Chinese investors is still NSW, where 40 per cent of deal flow occurred in 2017.

Investors have also diversified into smaller assets such as retail and mixed used assets in both NSW and Victoria.