Hong Kong receives 80 per cent of China’s outbound property investment in second quarter

China’s financial tightening has crippled outbound real estate investment this year to its lowest level since 2015, even as investment towards Hong Kong outperformed and the city emerged as the only bright spot.

Mainland China’s outbound real estate investment in the first six months dropped by 37 per cent to US$9.9 billion, its lowest level since 2015, according to Real Capital Analytics and Cushman & Wakefield.

In the second quarter, investment slumped by 45 per cent year on year to US$4.3 billion. In 2017, investors from mainland China deployed US$42.2 billion overseas, an increase of 10.3 per cent over 2016, despite government scrutiny and capital controls.

Analysts said outbound property investment has been falling since mid-2017. This year, however, the decline has intensified thanks to domestic financial tightening, which has emerged as the main culprit.

“Previously domestic institutions and developers mainly relied on back-to-back loans from domestic banks to do overseas deals, but since this year this business is increasingly difficult. Tighter funding onshore also pushed Chinese investors, especially developers, to focus on residential projects that generate immediate cash flow,” said Jason Zhang, head of China outbound investment and advisory services, Cushman & Wakefield.

Nonetheless, investment toward Hong Kong has largely held up, accounting for 80 per cent of the total outbound investment in the second quarter. First half investment in the city increased by 23 per cent year on year to US$6.58 billion. Hong Kong deals accounted for six of the largest 10 deals in terms of value.