There has been a huge surge in Chinese outward investment into real estate in recent years, led by the softening of Chinese market conditions and government policy encouraging overseas investment by Chinese firms.
Australia in particular has seen an increased investment, with the next wave diversifying into new destinations such as Brisbane, Gold Coast, Adelaide, Perth and regional suburbs of NSW and VIC.
According to Knight Frank's latest report, Chinese Outward Real Estate Investment Globally and Into Australia, the total value of Chinese outward real estate investment globally skyrocketed from US$0.6 billion in 2009 to US$16.9 billion in 2014 - a 205% increase from 2012.
Knight Frank’s Mr Dominic Ong, Senior Director of Asian Markets, Capital Markets, said, “It is expected that 2015 will be another record year for Chinese outward investment, both internationally and into Australia, with the expectation of more than US$20 billion worth of investments transacting globally. So far the majority of the Chinese outward investment has been focused in gateway cities of Australia, the US and the UK.”
According to Mr Ong, “What first started as sovereign funds making exploratory investments has proliferated into buying sprees by Chinese developers, banks, Ultra High Net Worth Individuals (UHNWIs) and institutional investors, such as insurance companies. By 2020, authorities estimate that the Chinese insurance industry will accumulate a further RMB20 trillion worth of premiums, tripling the current pool size.
“This current wave of equity investors and insurance firms are seeking core, value-add and yield-driven opportunities. Amongst the big-cap players, only four of the top 10 Chinese insurance companies have made offshore investments so far, although the remaining six are considering overseas expansion. Sunshine Insurance Group is the only one to invest in Australia, purchasing the Sheraton on the Park Hotel in Sydney for a record AU$463 million, however we expect these groups to be active on Australia listings in 2015.
[urbanRelatedPost][/urbanRelatedPost]“For Chinese investors in the Australian market, the gateway cities – namely Sydney and Melbourne – have been the most active market for Chinese investors. The next wave of Chinese investors are diversifying more and broadening to areas such as Brisbane, Adelaide, Gold Coast, Perth and metropolitan suburbs of NSW and Victoria, which will all start to gain more traction.
“These investors will also diversify by broadening their sector allocation from core office and residential developments into hotels and leisure, student accommodation, industrial assets and mixed-use developments,” said Mr Ong.
According to Knight Frank’s Group Director of Research & Consulting, Mr Matt Whitby, one of the most powerful drivers “pushing” capital out of China, has been the continued consolidation of China’s residential real estate market. “In March 2015, all of the 70 major Chinese cities recorded annual house price falls, compared to March 2014 when only one city recorded an annual decline.
“Chinese UHNWIs are exploring Australian investment opportunities and their investment strategies are far ranging. They are open to different asset classes, with interests ranging from smaller shopping centres, such as the Campsie Centre, to offices such as 299 Elizabeth Street in the Sydney CBD, residential units and lifestyle properties.
“Enquiry and deal flow across key Australian cities – namely Sydney, Melbourne and Brisbane, has picked up over the past year for office space, albeit predominately smaller deals sub 1,000m². Examples include Kingold, Ruizean and Hailiang into Gateway in Sydney, Greenland, AXF and Power China into various Melbourne CBD buildings and China Construction Bank into 340 Queen St in Brisbane.
“We expect even greater activity throughout 2015 and 2016, with banks, energy/mining, fund managers and developers taking space in predominantly Premium or A+ buildings with views, which should support greater demand in that segment of the market,” said Mr Whitby.