‘2016 marks the first time in history Chinese buyers acquired more than US$100b worth of international real estate,’ says a report
Chinese real estate investors spent a record US$101.4 billion on international property in 2016, according to a report released this week by Juwai.com, a major property website.
The estimate by Juwai.com of aggregate property investment includes real estate purchases by corporate and individual retail investors and is based on the website’s data gathered from both the industry and the governments.
“2016 marks the first time in history Chinese buyers acquired more than US$100 billion worth of international real estate,” said Sue Jong, chief of operations at Juwai.com. “The 2016 total represented more than a quarter increase over 2015 and an 845 per cent surge over five years.”
Hitt said Engel & Völkers real estate advisers in Vancouver, Manhattan and Los Angeles were seeing a strong influence from Chinese buyers, in addition to the secondary and university towns throughout North America.
China has been implementing tough measures to restrict outbound investments in the face of accelerating capital outflows. They include banning overseas investments of more than US$10 billion, forbidding mergers and acquisitions worth more than US$1 billion that are outside a Chinese investor’s core business and halting foreign real estate deals by state firms involving more than US$1 billion. But headline-grabbing cross-border deals have continued regardless.
One driver of Chinese investment is that despite the country’s torrid pace of overseas acquisitions in recent years, it remains underinvested globally compared with other economies.
China ranks only 18th in the world by aggregate ownership of foreign real estate and other assets compared to gross domestic product, at just 12 per cent. That is well below the average of 42 per cent at the Organisation for Economic Cooperation and Development, lower even than Slovenia.
“We believe we estimate conservatively when we forecast that Chinese investors will acquire more than US$1.5 trillion of overseas assets in the coming decade or so as they close the underinvestment gap,” Jong said. “Up to half of this new investment could go to property.”
China last year surpassed Singapore as the largest source of Asian capital in the global real estate market for the first time, accounting for nearly half of the total US$60 billion investment.
However, this year, smaller deals might have replaced the larger ones seen in 2016, according to global real estate service provider CBRE.
Outbound property investment by mainland Chinese institutional investors last year surged more than 56 per cent to US$28.2 billion from 2015, CBRE said in its Asian outbound investment report released in March. Singapore’s investment dropped 35 per cent to US$12 billion while Hong Kong ranked third with US$8.4 billion.
The Juwai.com study found that Hong Kong came third in the countries for mainland Chinese investment by dollar value in 2016, behind the US and Australia.
“Current trends suggest that Chinese property investment this year will be on a par with the levels of 2015, at about US$80 billion. That would make 2017 one of the top two or three years in history,” Jong said. “So while levels are lower than in 2016, they will still be extremely high by any standard.”
Henry Chin, head of research for Asia-Pacific at CBRE, added that the China outbound investment story was unlikely to abate though it would look different going forward.
“Chinese investors will become more selective on international real estate deals as they need to build in longer approval windows to any offshore investment,” Chin said.
“As a result, we expect smaller deals becoming a greater reality as every deal more than US$1 billion will require special approval.”
CBRE agreed that the US would continue to be the preferred destination for Chinese investors.
Due to a strong pick-up of Chinese investment in Asia-Pacific, Australia will remain the desired destination for institutional investors. Hong Kong will attract attention from developers and insurance companies while more mainland Chinese developers are looking to invest across Southeast Asia to participate in the “Belt and Road Initiative”.
“Mainland developers are particularly active in the government land sale market, having snapped up all five of the residential sites sold so far in 2017,” said Ingrid Cheh, associate director of the research department for Hong Kong at JLL.
“Their interest in development opportunities shows no signs of abating even though the Hong Kong Monetary Authority lowered its borrowing limits on sites and conditions on construction financing to developers in the second quarter of this year.”
JLL said one of the reasons for mainland developers’ interest in the city was the possibility for them to hedge against the yuan’s depreciation against the Hong Kong dollar by diversifying their portfolio.
Faced with slim profit margins and restrictive regulations at home, these developers may also use Hong Kong as a gateway to build their brand image and expand their global business while gaining opportunities to set up joint ventures with local players and participate in land acquisitions.
Globally, JLL said the Hong Kong market had accounted for less than 5 per cent of the transactions in recent years after the government moved to block the movement of funds overseas, effectively curbing international investment demand as a result.
Yet, mainland buyers continued to dominate transactions at the top end of the market. Of the five most expensive residential properties transacted in terms of square footage, three involved mainland buyers.
Going forward, while the existing measures would continue to dampen overall transaction volumes involving mainland buyers, those eyeing the top end of the market were unlikely to be affected significantly, especially given their deep pockets, positive view on the long-term market outlook, the limited supply of luxury residential stock and their willingness to provide sizeable stamp duty rebates, JLL said.