Formerly called “One Road, One Belt”, the BRI which was first unveiled by President Xi in 2013 will facilitate and accelerate the flow of people, goods, capital and ideas between Asia, Africa and Europe. Chinese companies already pumped large amounts of funds into Southeast Asia, and they are expected to pour billions more into the region with the BRI.
The new Silk Road is expected to drive an infrastructure development and construction boom, which will have a massive positive downstream impact on a wide range of industries, helping to stimulate growth in wealth.
Growing markets in Southeast Asia appealing
Colliers International believes the BRI, coupled with RMB strength and the firm economy, should drive Chinese investment in Southeast and South Asia over the next five years. Beijing’s capital controls and the gradual rise in interest rates are unlikely to deter Chinese investors – especially large developers - who are sitting on cash piles and looking to diversify their portfolios and land banks.
In 2017, Chinese investment in Asian property assets surged by 34% from 2016 to USD12.5 billion – largely centred on Hong Kong, Japan and Singapore. That was nearly a third of total overseas property investment by the Chinese, at USD39.5 billion, last year, according to a recent Colliers’ research report on the BRI.
Chinese investment in the fast-growing markets Southeast and South Asia hit USD2.5 billion in 2017, with Singapore accounting for 84% of the total. Colliers expects investment interest in the region to stay high and the Republic is a natural starting point for Chinese investors hoping to make inroads into Southeast Asia owing to its strategic location and excellent flight connectivity. The Singapore Changi Airport provides connectivity to 380 cities worldwide via over 100 airlines.
Singapore: An investment lure
Chinese corporates are no strangers to investing in Singapore, with the real estate sector a key beneficiary. Logan Property is among the new entrants to Singapore market, snapping up two prime sites in 2017: the joint acquisition of a government land sales site in Stirling Road for SGD1.003 billion with fellow Chinese developer Nanshan Group; and the purchase of Florence Regency via collective sale for SGD629 million.
The city-state, with its pro-business environment, transparent and efficient processes, and political stability, should remain a key investment destination - particularly since the underlying office and residential markets have entered a multi-year upcycle.
After a few years of slow economic growth, the Singapore economy is back on firm footing, expanding by 3.6% in 2017. In addition, private sector economists have pencilled in a healthy growth rate of 3.2% for Singapore this year in a survey by the Monetary Authority of Singapore announced in March.
The better showing on the economic front has helped to lift market sentiment and confidence, which in turn led to more robust property investment sales and a recovery in office rents in Singapore towards the end of 2017. Add to the mix a revival in the private residential market, and Singapore looks very attractive to foreign investors, especially from China.
Singapore is also home to a growing list of Chinese firms from diverse sectors including technology, real estate, financial services, insurance, energy and resources, as well as retail. Earlier this year, Chinese artificial intelligence company Yitu Technology opened its first international office in Singapore with plans to hire 50 to 60 researchers here.
It is safe to say that the Singapore’s focus on innovation, as well as its highly skilled workforce and top-notch infrastructure, will continue to play a crucial role in enticing foreign companies to set up their regional or global headquarters in the country.
What will the Chinese buy?
Colliers thinks Singapore is currently under-invested by Chinese companies, even though they have been relatively active in the real estate sector in the past few years. These are some assets that investors could whip out their chequebooks for:
- Prime office properties: Demand could rise from Chinese firms setting up a base in Singapore to tap opportunities in Southeast Asia, particularly Malaysia, Indonesia and the Philippines.
- Residential developments: Greater economic activity will bring more global talent to Singapore, spurring housing demand. The recovery in home prices and pent-up demand for homes also bode well for the sector.
- Hotels and serviced apartments: Singapore tourism sector performance broke the record for the second year running in 2017 as tourism receipts rose by 3.9% to SGD26.8 billion, while visitor arrivals increased by 6.2% to 17.4 million. Tourists from China regularly top the international visitor arrivals chart in Singapore.
For all the above market drivers, Singapore makes for a natural gateway to the region for Chinese firms, which may be casting their gaze on Southeast Asia after having invested substantially in China and Hong Kong over the years.