Chinese Investors Still Hungry for Commercial Property

By Jared Hodge

Commercial real estate remains the second most attractive sector for Chinese investment, but purchasers are becoming more selective with their targets, says a new report released recently by KPMG and The University of Sydney.

Demystifying Chinese Investment in Australia reveals Chinese investors are targeting smaller, higher-quality real estate assets in Australia following Beijing’s recent restrictions on capital outflows.

Overall Chinese investment in Australia fell 11 per cent in 2017, from 15.4 billion to 13.3 billion, however the composition of investment by real estate type is broadly similar.

Australia received $4.4 billion in real estate investment or 11.5 per cent of China’s global real estate overseas direct investment (ODI).

Residential development sector transactions accounted for around 44 per cent of the total value, followed by office (30 per cent) and mixed-use (9 per cent).

Commercial (office, industrial, and retail) property transactions have been steady.

While investment in commercial property peaked in 2015 ($4.0 billion) this was inflated by CIC’s $2.5 billion acquisition of a local commercial real estate company’s office portfolio. Excluding this sale, investment in 2015 would have only been $1.5 billion, which is lower than $1.8 billion recorded in 2017.

Investors and developers are becoming more selective in acquisitions, with mandates increasingly geared towards higher quality investment assets and well-located sites with less planning risk.

There has also been a partial shift away from trophy assets and large-scale acquisitions, with investment activity concentrated in the $5 million to $49 million price bracket.

This shift is somewhat attributable to the restrictions placed on capital outflow from China. The more robust asset selection criteria and the shift towards quality product and sites at the smaller end of the market is reflective of the capital control measures.

The report authors found that Chinese investors consider whether their investment is in a sector that is encouraged or restricted by the Chinese government before pursuing and making investment decisions and applications.

The diplomatic relationship between China and Australia is also a factor. A number of Chinese investors highlighted that the state of diplomatic relations between governments is a regular topic of conversation among Chinese investors in Australia and with their respective head offices in China.

At the same time, Chinese investors indicated there is growing familiarity with and confidence in the Australian market.

“Australian real estate remains a key destination for Chinese capital,” said the head of a Chinese Commercial Real Estate company in Australia, who contributed to the report.

The macroeconomic framework is supportive, while the market is attractive from a global perspective – economic fundamentals are robust, population growth is solid, market transparency is high, and returns are broadly higher relative to comparable markets globally,” he said.

Of the 63 real estate deals in 2017, 45 were made by repeat investors with a number of investors involved in more than one deal.

This demonstrates the value and confidence gained from the local knowledge of firms already invested in the market.

Chinese investors are increasingly conscious of the need to acquire assets, knowledge and technology and then leverage their links to the Chinese market for profitable growth, rather than base their investment on the expected growth of the domestic Australian economy alone, Mr Zhang said.

The Chinese are investing with a long-term focus—and this is positive for Australia.


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