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China’s global appetite has Asia on the menu
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CHINA’S appetite for global real estate investment continued to be strong in the first quarter of this year despite a government pledge to monitor capital outflow. Chinese mainland investors, however, are more likely to take a more cautious approach and show an increasing interest in regional investment.
The Chinese conglomerate HNA Group Co was reported last month to have led a deal to acquire Manhattan’s 245 Park Avenue for US$2.21 billion — one of the highest prices paid for a New York skyscraper. HNA might be involved with at least one partner on the purchase, according to Bloomberg, citing two people with knowledge of the negotiations.
The 158,000-square-meter office tower, whose tenants include JPMorgan Chase & Co, is being sold by Brookfield Property Partners LP and its 49 percent partner in the property, the New York State Teachers’ Retirement System.
Beijing Capital Development Holdings, or Beijing SHOKAI, also announced recently that it had successfully acquired 2 Fleet Place, a Grade-A office building in London, from Grosvenor London Office Fund for 96.5 million pounds (US$120.3 million). Tenants include Samsung and Starbucks.
Prominently sited to the south of Holborn Viaduct and close to Farringdon Crossrail Station, the building is the Beijing developer’s third investment property in the British capital, following Friary Court in October 2015 and 30 Crown Place last December.
“Despite recent policies by the central government restricting outbound investment, Chinese appetite for global real estate investment will remain solid but more cautious,” said Alan Li, managing director of capital markets, CBRE China.
“Instead of larger transactions, Chinese investors may opt for a higher number of smaller deals,” Li said.
Chinese investors were highly active in deploying capital offshore into global real estate assets last year. Offices and hotels remained the main investment targets, accounting for 85 percent of China’s capital outflows.
Largest source of capital
The United States, meanwhile, retained its position as the most popular destination for Chinese real estate investment outside the mainland, followed by Hong Kong and the UK.
In Asia, where outbound capital flows into global real estate markets totaled US$60 billion in 2016, China has overtaken Singapore as the largest source of capital, accounting for 47 percent of the total investment. Overall outbound capital flows into global real estate assets by Chinese investors last year surged more than 56 percent from 2015 to US$28.2 billion, according to data compiled by CBRE. Chinese led investment activity by contributing to four of the top 10 biggest outbound deals last year.
A separate report released earlier by global real estate services provider JLL found investments last year by Chinese mainland investors in overseas commercial and residential properties surged 53 percent from 2015 to a record US$33 billion, with insurers making the most notable purchases.
“We do believe that Chinese investors will continue to be major movers of capital into global real estate for many years to come,” noted David Green-Morgan, director of global capital markets research at JLL. “But a similar increase in 2017 may be challenging given the recent discussion about China monitoring its capital outflows.”
China announced last November that it was taking a more cautious stance to capital outflows, curbing overseas investments of above US$10 billion, and mergers and acquisitions valued at more than US$1 billion if they were not part of a company’s core business.
However, Xinhua news agency later said China would continue to allow enterprises to make their own decisions about overseas real estate investment.
Investing overseas is a strategic move for many Chinese investors and few long-term structural changes are expected though there may be some short-term slowdown or delay, according to Stuart Crow, JLL’s head of Asia-Pacific capital markets.
Chinese investors’ robust appetite for overseas real estate investments is also boosted by the country’s One Belt, One Road initiative.
Huang Qisen, chairman of Tahoe Group Co, a real estate developer based in Fujian Province, said last month that now was a good time now to extend its footprint to overseas markets — as this made for a positive response to the One Belt, One Belt initiative.
Shenzhen-listed Tahoe announced on January 18 that it had invested US$44 million into the CITIC Capital London Mayfair Property Fund LP. Set up for the development of a luxury residential project close to Buckingham Palace, the investment marks the Chinese developer’s first major attempt in tapping the overseas market under its global expansion strategy.
While the US remained the most favored destination for Asian capital in 2016 for the second consecutive year with a 43 percent share, Asian investors are showing growing interest in keeping more capital within their own region. Last year, for example, Asia comprised 23 percent of overall investment turnover, up from 21 percent in 2015, according to CBRE.
A slowing depreciation of the yuan could be the reason for such a shift.
“We predict Chinese interest in foreign property will shift towards Asian markets from 2017,” said Andrew Haskins, executive director of research and advisory at Colliers International, “because the bulk of yuan depreciation has probably already happened and yuan is not expected to fall much further, which may lower the attraction of US property to mainland investors.”
The Chinese government’s recent attempt to impose new capital controls, including strict limits on large corporate investments abroad, should also help to suppress further depreciation of the yuan, Haskins added.
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