Chinese investors expand acquisitions worldwide to tap outbound Chinese travellers
There is an old Chinese saying which goes: ‘do not let your water flow into the farmland of others,’ meaning keep all the goodies in your family.
HSBC did a survey pegging outbound Chinese traveller numbers are expected to hit 242 million by 2024 which is more than double last year’s amount estimated by HSBC to be 116 million.
With that in mind, Chinese investors are hot on their heels with an extensive and growing list of global luxury hotel developments and acquisitions.
The trend is likely to deepen as Chinese hotel operators and wealthy companies are expected to follow the footsteps of state-owned enterprises and leading developers.
Chinese investors have become major players in the hotel market over the past 24 months and in 2015 alone have been responsible for acquiring US$5 billion worth of hotel assets outside China as of September, according to property consultants JLL Hotels & Hospitality Group.
In a CBRE survey, hotel acquisitions by Hong Kong and Chinese money rose from 2014’s US$3.2 billion to US$6.5 billion in the first three quarters of this year. The money has doubled annually since 2012.
“We expect to see significant outbound investment from a number of Chinese groups next year and once again hospitality assets will continue to be on their radar,” Aaron Desange, senior Vice President Investment Sales Asia, said. “It is anticipated that global outbound Chinese investment will surpass levels reached in 2015 of approximately US$5.3 billion.”
“We are seeing a substantial amount of capital seeking offshore opportunities with the majority of these groups being large private conglomerates with real estate and construction exposure. These groups remain keen on acquiring trophy assets in key gateway global cities like New York, Tokyo, Sydney and London.”
“They are also starting to focus their attention towards Chinese outbound tourism markets including luxury resort destinations,” said Desange, adding that JLL have recently undertaken transactions in the Maldives with Chinese investors.
Robert McIntosh, executive director, CBRE Hotels, Asia Pacific, said capturing the growth of rising Chinese tourists is a reason for mainland investors to buy into hotel assets.
“A lot of Chinese travellers going overseas. Chinese (hotel) owners have a great opportunity to take advantage of that,” said McIntosh.
In addition, a recent report by the Fung Business Intelligence Center and China Luxury Advisors found that outbound Chinese travellers spending will hit US$422 billion by 2020, up from an estimated $200 billion this year.
McIntosh expected more Chinese hotel operators to buy assets overseas.
Traditionally American and European hotel operators dominated the market because those were the people travelling before. It was comfortable for them to stay at these hotels.
“Some of the same things will happen in Chinese hotel brands,” said McIntosh.
He said the diversification issue is another major reason for their purchases. “They want to buy in different markets,” he said, adding that the luxury hotel business in China has been slowing.
In 2015, the top countries that Chinese money liked to go in the past year were the US, France and Australia, according to CBRE.
Major transactions in the past 12 months are the Waldorf Astoria in New York for US$1.95 billion, acquired by mainland’s Anbang Insurance in October last year, and the Louvre Hotels Group by Shanghai Jinjiang for €1.4 billion early this year.
Analysts expected a sustained or increased Chinese cross-border investment in hospitality in 2016.
“Our range of expectations is to see Chinese global hospitality investment in 2016 at levels
from 5 per cent to 15 per cent above 2015,” said Simon Henry, co-Founder of Juwai.com, an online service offering Chinese customers information and services on overseas property purchases.
Historically, the profile of investors attracted to such opportunities has big real estate firms, large hotel operators and insurance companies.
The sector will also attract small developers, investment consortiums, family funds and individual investors. Significant hotel assets are relatively expensive, making them unsuitable for smaller
group of investors. These investors more commonly buy small hotels or opt for other categories of assets, such as small commercial projects, land and residential property, according to Juwai.com.
Then there is the EB-5 programme in the US which allows investors to obtain permanent residence in that country. Hospitality developments are especially suitable for the EB-5 programme, because the new hotel’s staff can be counted towards the visa programme’s job creation requirements., according to Juwai.com.
The buying spree also increased hotel prices.
In the US, the Average Selling Price Per Room (ASPR) for hotels sold in 2015 through September reached an all-time high of US$165,303. That is a record high and is 11 per cent higher than the US$148,658 recorded in 2014.
Chinese buyers are responsible for helping drive up the average seeking price per room (ASPR), according to Juwai.com.
Two Chinese-buyer transactions in New York City - the Baccarat Hotel in Manhattan by Sunshine Insurance for $230 million or US$2.0 million ASPR and the Waldorf Astoria by Anbang Insurance at US$1.4 million (ASPR) pulled the average upwards.
“We do not expect price per room to drop meaningfully in 2016,” said Henry of Juwai. “There is still significant competition for attractive assets that offer great long- term value, and we believe buyers will be willing to offer a premium to acquire them.”