Chinese realty sprees overseas to continue
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E-mail Shanghai Daily, February 27, 2015
A real estate buying spree overseas by Chinese investors is expected to continue for at least the next few years as developers, institutional funds and the privately wealthy seek portfolio diversification and long-term, stable returns amid a softening domestic market.
Chinese investors may fork out US$20 billion this year on offshore property, according to the latest forecast by international property consultants Jones Lang LaSalle. That would be up a fifth from last year, when US$16.5 billion was splashed out on overseas real estate. Of that, 70 percent were invested in commercial property, including office buildings, retail malls and hotels.
"The emergence of Chinese capital in the global real estate market has been growing steadily in recent years," said David Green-Morgan, head of global research for international capital at the firm. "The fact that half of all Chinese purchases in 2014 were outside of China may herald that demand for overseas property investment could remain strong for many years to come."
In 2014, the trend captured world attention as the media chronicled one landmark purchase after another as Chinese investors snapped up iconic office buildings in London and trophy hotels in New York and Sydney.
The first month of this year showed no softening in the trend.
At the end of January, Fosun Group, controlled by billionaire Guo Guangchang, announced a partnership with Australia's Propertylink to purchase a 14,672-square-meter office building in Sydney for A$116.5 million (US$92 million). It was Fosun's first foray into the Australian property market.
Days earlier, Chinese media reported that Dalian Wanda Group, controlled by Wang Jianlin, the second-richest man on China's mainland, bought Gold Fields House on Sydney's Circular Quay from Blackstone and a group of pension funds for A$414.7 million. The office block, overlooking the iconic Sydney Opera House, will be turned into luxury apartments.
Also in January, Ping An Insurance (Group) Co paid 327 million pounds (US$502 million) to acquire London's Tower Place, a Grade A office complex located in the capital's insurance district. It was Ping An's second major real estate investment after the purchase of Lloyd's Building for nearly US$400 million in July 2013.
"Investors today are shifting their focus toward sustainable returns in the long term," said Dominic Ong, senior director of Asian markets at Knight Frank Australia. "The key factors for Chinese investors are the policy push from the Chinese government to diversify into other countries, a softening domestic market and the attraction of higher returns overseas."
Chinese overseas real estate investment skyrocketed from US$600 million in 2009 to an estimated US$15 billion in 2014, with majority of that money going into gateway cities in the United States, UK and Australia, according to Knight Frank. The firm forecasts that investment will rise to between US$20 billion and US$30 billion this year.
"What first started as sovereign funds making exploratory investments has proliferated into buying sprees by Chinese developers, banks and institutional investors, such as insurance companies," said David Ji, head of research and consultancy at Knight Frank China. "Having invested heavily in core office and residential developments in gateway cities, Chinese investors are now diversifying into leisure and industrial assets and expanding into provincial capitals such as Manchester, Frankfurt and Brisbane."
In the first wave of overseas property investment, sovereign wealth funds invested in trophy assets and banks acquired residential sites. Large developers then followed suit in the same asset categories. In the current third wave, equity investors and insurers are mainly focused on yield-driven opportunities. A fourth wave in the making, involving the super rich, private developers and mid-cap state-owned companies, may be harder to track as investors diversify into other segments of the property market, Knight Frank said in a report on Chinese real estate investment.
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