Concern has grown in recent weeks that the tide of Chinese investor capital flowing into global commercial real estate markets will freeze up. While these worries may be warranted, and stricter regulation and scrutiny may reduce activity, Chinese appetite for overseas real estate investments is not likely to disappear completely.
Fears about stalling activity grew after further news from the Chinese government regarding the clampdown on capital exports, and the demise of a high-profile London deal which has been blamed on the new restrictions.
Since the Global Financial Crisis foreign real estate investment by Chinese investors has tripled per year on average. This rapid expansion shifted capital totaling $88.4 billion from the start of 2010 to midyear 2017, according to Real Capital Analytics data. Investors have been acquiring property across the globe as domestic wealth increases and buyers seek a safe home for their capital and better returns.
Chinese investors own 1570 properties around the world, RCA holdings data shows. This pool of assets is the second largest of any Asian buyer group, after Singaporean investors. Hotels are the most popular asset class owned by Chinese investors, followed by industrial and office. Close to a half of all their foreign real estate holdings (based on number of properties) are in the U.S., followed by Australia, Hong Kong and Japan.
Chinese acquisitions of overseas income-producing property declined 15% year-over-year in the first half 2017 – following a record-setting full year 2016 – to total $10.1 billion. Still, more deals from Chinese buyers are underway. The most notable is CIC’s acquisition of the Logicor portfolio and there are another 12 deals due to close in the coming months, for a total of nearly $17B.
The demand by Chinese investors for overseas commercial real estate investments will not evaporate, however the new rules will influence capital’s behavior and direction. Established Chinese investors will be able to maintain their global presence either directly via their existing offshore entities, or indirectly via balance sheets of foreign companies and investment platforms they partially own.
Moreover, new Chinese investors will be able to use alternative routes, with Hong Kong’s financial markets playing a key role; no specific regulations have addressed this trading route yet. Lastly, the One Belt, One Road initiative is there to provide Chinese investors new investment opportunities in new locations.