Speculation grows that Chinese buyers are losing interest in Australia following the country's tighter lending from banks after Chinese investment in the US market has surpassed $300 billion, and continues to increase despite China's economic weakness and increased legislative controls, according to a report from Rosen Consulting Group - a leading US real estate consulting, research and analysis firm - in partnership with the Asia Society.
The report's significance is highlighted by being the first independent study to prove Chinese investors rank among the top in every real estate sector.
Between 2010 and 2015, Chinese investors purchased $93 billion in residential real estate, almost $208 billion in mortgage-backed securities and acquired at least $17.1 billion of commercial real estate including existing office towers, hotels, and other commercial buildings, representing an annual growth rate of 70 per cent. Half of that investment came in 2015 alone, the report states.
The buyers were mainly large Chinese companies, including real estate firms and institutional investors. By the end of 2015, Chinese-funded projects under construction or planned totalled at least $15 billion.
These range from multi-billion-dollar mixed-use projects in Los Angeles and the San Francisco Bay Area to smaller-scale developments in secondary markets with investors including Chinese developers, builders, and construction companies, some of which have set up U.S. offices, creating local jobs for ongoing operations beyond the construction phase.
In recent years, Chinese banks increased activity in lending for real estate acquisitions, recapitalisations, and construction and development. The banks have amassed at least $8 billion in loans and have become a major source of funding for large commercial real estate projects. This loan portfolio extends beyond Chinese investors and projects with Chinese partners, as leading Chinese banks are active competitors with U.S. and international banks and private sources of capital in the commercial property market.
However, direct foreign investment in China still only accounts for 10 per cent of foreign direct investment going into the US.
The report projected that Chinese direct investment across existing U.S. commercial real estate assets and residential purchases, excluding new development projects, could total at least $218 billion, cumulatively, from 2016 through 2020. In the short term, the report said capital controls will likely slow individual purchases of U.S. homes, the biggest component of Chinese real estate investment, and slow the growth rate of commercial property acquisitions. Chinese-backed development projects are likely to remain a substantial component of the commercial real estate market even as the economic cycle in the United States slows the overall pace of new development announcements. Beyond 2020, Chinese investment in U.S. real estate could accelerate further.
The report outlined recommendations to US policy areas including the rationalisation of taxes affecting foreign investment, continued implementation of existing security policy including higher screening for security risks and confirmation of legitimacy of capital sources.
Recommendations on the Chinese side, according to the report, include the continued development of legal and financial rules to encourage private sector investment in overseas property, enhanced transparency in capital ownership and avoidance of capital controls plus the rollout of professional education on US real estate practise.
In 2015, China ranked third in U.S. commercial real estate acquisition volume, trailing only Canada and Singapore and tied with Norway.