Chinese investment activity in the Australian property market has focused mainly on assets in the sub-$50 million range, with total outbound investment down under dropping 60 per cent.
Chinese investment in Australian commercial property tumbled 60 per cent to $2.83 billion in 2017, from $6.97 billion in 2016.
Cushman and Wakefield’s latest update on Chinese capital outflows revealed that investment into larger Australia assets – more than $200 million – accounted for just four per cent of deals, while completed deals in the sub-$50 million range accounted for 73 per cent.
While China is still a major player in Australia’s property market, taking a one-third helping of national development sites, the 60 per cent fall was due to Beijing’s curbs on capital outflows, Australia’s tougher lending conditions and macro-regulatory imposts on foreign buyers.
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Total 2017 investment comprised $1.97 billion invested into standing assets and $853 million in developments sites, a decline of 60 per cent and 72 per cent respectively.
Cushman & Wakefield head of capital markets James Quigley said that while there was a significant drop in China outbound investment into Australian real estate over the past year, Australia remained as one of the top global destinations of choice for Chinese investors, ranking second for the third consecutive year behind the United States.
“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 weaker.
“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,” he said.
While mainland Chinese investment decreased, investment from Hong Kong increased by 20 per cent last year, rising from $918 million to $1.1 billion.
“Nonetheless, some investors are likely to be less impacted by recent policy changes, and so are expected to remain active purchasers.
“As investors change strategies and potentially lower volumes, this also presents near term opportunity for local capital partnering,” Quigley said.
Since 2015, there have been three major policy developments that have impacted Chinese investment into the Australian real estate sector. The China Australia Free Trade Agreement (CHAFTA), the Belt and Road Initiative, and most recently, the updated guidance on foreign investment (Circular 74).
While the CHAFTA is designed to make trade more efficient, the Belt and Road and Circular 74 are expected to have broader reaching implications for commercial real estate.
The expected impact of these policy frameworks will include lower investment volumes and fewer Chinese investors in the market, also driving opportunities for capital partnering and local asset management services.
Over the longer term, there is an anticipated uplift in demand for space as Chinese occupiers continue to expand into international markets.