Chinese investors make a beeline for overseas hotel assets

Outbound deals by Chinese companies soar as prime assets become scarce in domestic markets

PUBLISHED : Tuesday, 23 August, 2016, 4:01pm
UPDATED : Tuesday, 23 August, 2016, 4:01pm

Outbound property investment by Chinese companies more than doubled from a year ago as a scarcity of profitable domestic assets saw investors shopping abroad to diversify their asset portfolios during the first six months of this year.

According to data from CBRE, China’s outbound property investment rose by 144 per cent to US$16.1 billion during the first six months of the year, compared with US$6.6 billion during the same period a year ago. China’s outbound investment as a share of Asian investment rose from 34.7 per cent a year ago to 60 per cent.

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“Demand for overseas assets rose as a growing number of companies are keen to reduce their exposure to local market risk. The lack of investable domestic assets is another important reason,” said Alan Li, head of investment and capital markets for Greater China at CBRE.

According to Li, Chinese investors have increased their investment in US markets, especially in gateway cities, due to the country’s stable economic performance in the first half. Chinese investors have also been active in various asset classes like offices, hotels and retail spaces.

Chinese insurance companies accounted for about US$8 billion, or half of the total overseas investment. Anbang Insurance alone spent more than US$7.3 billion on overseas acquisitions in the first half. In March, the firm brought US-based Strategic Hotels & Resorts, with a portfolio of 16 hotels, from Blackstone Group for US$6.5 billion. China Life, a state insurer, paid US$500 million to buy New York’s PaineWebber Building.

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Outbound investment moves by Chinese insurers have gathered pace since 2014, when the Chinese government relaxed outbound investments norms. Most of the deals since then have been in hotel purchases, or about 81 per cent of the total investment in the first six months of this year.

Conglomerates were the second largest buyers and made up 23 per cent of the investment. China Everbright Group spent US$1.3 billion in February to acquire Hong Kong’s Dah Sing Financial Centre, from SEA Group.

Institutional investors have been another mainstay of outbound deals. China Investment Corporation, China’s sovereign wealth fund, paid US$1 billion in the first half to acquire property, including One New York Plaza.

The upsurge in cross-border transactions comes at a time when there is an acute scarcity of prime assets in the domestic market. Nothing illustrates this better than the credit data for July. New credit disbursals by non-financial corporations fell by 49.7 billion yuan in July, while current deposits surged, as the firms struggled to find viable investment projects and opted to clear out existing debt, according to data from the People’s Bank of China, the Chinese central bank.

Pan Shiyi, chairman of commercial property company SOHO China, sold his office building in central Shanghai in July despite a bullish market. Explaining the sale, he said: “We want cash and other institutions want assets to allocate. That’s it. We will sell two or three more properties in Shanghai.”