Chinese offshore investment

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

PUBLISHED : Thursday, 02 August, 2018, 11:13am
UPDATED : Thursday, 02 August, 2018, 11:15pm

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.

As tight funding holds back local buyers, global investors find China commercial property ripe for the taking

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.

The office sector remained the most favoured among mainland Chinese investors, accounting for 88 per cent of investment in Hong Kong. A lack of en bloc investment opportunities in core areas pushed investors to scout quality assets in decentralised areas. Hengli Investments, controlled by mainland tycoon Chen Changwei, in June bought a pair of office buildings in the Quarry Bay area from Swire Properties for US$1.9 billion.

The Center in Central was sold in May to a consortium of Hong Kong and Chinese investors, in the world’s most expensive real estate transaction.

Hong Kong’s Swire sells two office towers in Cityplaza development for US$1.9 billion

“Hong Kong is kind of an exception. It historically is more acceptable to mainland investors and has regular residential land for sale. Many mainland companies also invest in Hong Kong office space for self use,” said James Shepherd, managing director of Cushman’s Greater China Research.

Investment in the United States decelerated to US$81 million in the second quarter; in the first half it slumped by 93 per cent. Transactions included one office, the Chromer Building in Seattle, and one student flat near the University at Buffalo, according to RCA.

Cushman said the major impediments to investment in the US included the uneasy China-US relations, currency volatility risks, rising development costs and rising funding costs. Cushman said it expected China’s whole year outbound property investment to decline by 40-50 per cent this year from 2017.