Improving Trade Relationships Lead to Increase in Foreign Direct Investment by Chinese Investors
As Australia’s trade relationship with China has grown, the appetite for investing in Australia by the Chinese has also increased. China’s share of foreign direct investment (FDI) in Australia tripled between 2007 and 2012 – underpinned by a strong interest in real estate which, in recent times, has experienced higher investment growth from the Chinese than mineral exploration and development.
The Chinese regulations limiting the quantity of property purchased domestically, combined with the Chinese Government’s new laws encouraging offshore investment, have resulted in record activity by Chinese investors in the Australian market.
Mr Malcom Tyson, State Chief Executive, NSW for Colliers International, says, “In 2012, Chinese outbound property investments around the world set a new record of around US$4 billion, a trend that is continuing into 2013. Their appetite for Australian real estate assets has grown significantly due to the relatively sound Australian economy, proximity to China and regulatory changes from both the Chinese and Australian governments which have made it easier for them to invest their wealth in Australia.”
Nonetheless, navigating the complexity of such transactions is often cited as a barrier in such deals, and the global marketplace and ‘local’ Chinese expertise has meant that such deals are occurring more regularly.
Mr Tyson comments, “Colliers International has had Chinese expertise in-house for 22 years. However, with the increasing transaction flows from China, we have invested further in our Asian division to enable us to service these clients across more asset classes. This team is able to advise both vendors and investors on the intricacies of multi-national deals. Our team in Shanghai works closely with our Asian desk in Australia to ensure Chinese investors looking to invest offshore have access to a range of suitable assets in addition to advice on investing in Australia.”
The four major sources of Chinese investment in Australian property come from:
1. Banks and financial institutions
Major Chinese insurance companies have been seeking offshore investment opportunities since the Insurance Regulatory Commission (CIRC) lifted its restriction on them investing in overseas property last October. Developed countries have been of particular interest to them.
2. Developers with global ambition
In recent years, Chinese real estate developers have extended their investment footprint into major gateway cities, such as London, New York, San Francisco and Sydney. Besides diversifying from the domestic Chinese market, which is considered to be more volatile and highly regulated by the Government, they can gain prominence as national brands that are becoming international; thereby, adding to their domestic credibility.
3 Large state-owned enterprises (SOEs) and China sovereign wealth funds (SWFs)
China’s large SOEs and SWFs are also joining the foray by investing in global real estate markets. With limited opportunities at home, and their increasing purchase power with the strengthening Chinese renminbi (RMB), overseas property assets are highly attractive.
For instance, SOE Shanghai Greenland Group made their first investment in Australia in March this year, with the acquisition of the Sydney Water Board site in Sydney’s CBD in order to develop a 240-metre tower that will be the city’s tallest residential building.
4. High net worth individuals (HNWIs)
Overseas property investments are not only attracting capital from Chinese institutional investors. There is also a growing number of wealthy Chinese HNWI’s who are snapping up overseas residential properties.
Similar to the Chinese corporate and institutional investors, they are seeking such investments in view of the slowdown of domestic growth and, more importantly, the fact that China still offers them very few channels through which they can invest their wealth.
While the increase in Chinese investment in the Australian residential property market has been widely reported, statistics show that Chinese investors are putting their money into a wide range of commercial property assets.
Mr Steam Leung, Director of Investment Sales at Colliers International Sydney, says, “While first time private investors may start by looking at residential investments, the more experienced investors have a broader appetite, and we are receiving interest across a range of asset classes from farmland and wineries through to retirement, hotel, retail and large office building assets. However, the most common enquiries are seeking Commercial A and B-grade offices and residential sites.”
Colliers International statistics show that Chinese investors have spent more than AU$600 million in the year to date on residential development sites in Sydney alone, with plans for almost 5,000 units on these sites.
Relatively poor returns in the equity markets and China’s slower economic growth have led Chinese investors to view overseas real estate as an attractive alternative investment opportunity. The increase in GDP fell from 9.5 per cent in 2Q 2011 to 7.5 per cent in the same time period of 2013, while the RMB has appreciated against overseas currencies over the past decade; thereby, increasing the Chinese investors’ purchase power and making foreign property markets attractive investment opportunities.