Chinese investment in foreign property leaps ahead
By Cherry Cao
China’s mainland has emerged as a major global exporter of capital, with outbound real estate investment surging rapidly in recent years, Cushman & Wakefield, the world’s largest private commercial real estate services firm, said in its latest published investment white paper.
From 2008 to June 2014, Chinese outbound investment in commercial property grew more than 200-fold and totaled about US$33.7 billion during the period, according to the white paper titled “China’s Outbound Boom: The Rise of Chinese Investment in Global Real Estate.”
“We see a variety of fundamental forces driving China’s outbound investment trends today,” said Mark Suchy, director of investment and capital markets, East China, Cushman & Wakefield. “Domestic restrictions and cooling market conditions in the Chinese real estate sector are pushing many investors to diversify to developed countries, where signs of economic recovery and the prospect of asset appreciation promise more attractive returns.”
“Positive Chinese policy reform, the strengthening of the yuan and the desire of Chinese firms to internationalize are further fueling these capital outflows,” he added.
A variety of investors — including large private developers, state-owned banks and insurers, sovereign wealth funds and high-net-worth individuals — are tapping into foreign property markets. While state-owned enterprises and private firms each contributed around 50 percent of the total value of outbound real estate investment during the period, private enterprises and individual investors accounted for a larger share of the number of deals, the white paper said.
Among all, office buildings are by far the preferred property type during the period, accounting for over 48 percent of total aggregate investment to date. Office investments experienced a spike in 2013, reaching US$8.4 billion — greater than the sum total for all other asset classes of US$7.4 billion that year.
“Chinese mainland investors prefer developed and mature markets in Asia, North America and Europe,” said Ted Li, national director of capital markets, China, Cushman & Wakefield. “The US is the top destination, followed by the UK, China’s Hong Kong, Singapore, Australia, Malaysia, Japan and Brazil.”
China’s investments in US property are concentrated in so-called “gateway cities” in the eastern and western coastal areas as well as the Great Lakes region. However, investors are increasingly tending to diversify their asset choices and spread their investments across the country.
The UK is the first choice for Chinese real estate investors in Europe, with London alone taking 62.7 percent of the European total. Southeast Asia is a favorite location as well, due to its proximity to China and the strong presence of ethnic Chinese communities. In Singapore, Chinese investors prefer to invest in offices, whereas in Malaysia, land development is the preferred vehicle.
“New York City, Los Angeles, San Francisco, London and Sydney will remain top investment destinations for Chinese outbound investment in the West, while cities like Seattle,Dallas and Melbourne will become more relevant as Chinese capital increasingly taps these ‘second-tier’ destinations,” Suchy added.