Offshore Chinese investments surge spilling over into 2016

There are many different reasons for mainland Chinese to buy properties overseas, but the simple fact is that their offshore purchases have been increasing at a rapid pace and the trend shows no sign of slowing down in 2016.

In a recent small scale survey of 450 mainland Chinese citizens via WeChat by a mainland property agent, East-West Property Advisors, in the first two weeks of December, worsening air pollution is cited as a reason why the trend to shop for houses oversease is likely to accelerate.

While immigration and education are also the reasons for mainland affluent Chinese to buy offshore, the trend is also supported by the growing need for diversification from some of the more hotly contested property markets in China.

Chinese real estate investment overseas has continued to grow strongly in 2015, riding on the strong appetite for overseas real estate from both major and smaller investors. The total volume of investment in the first 11 months of the year has reached US$ 28.3 billion already, topping last year’s total of US$15.1 billion by some 87 per cent, according to Knight Frank.

A similar survey was cited by Colliers International that the total volume of Chinese offshore investment reached US$29 billion from January to December 22 this year, up 87.6 per cent from that of last year.

“While more developers among the country’s top 20 have invested overseas this year (increasing from 10 to 14), there has been only a limited increase in the number of top 20 insurers investing abroad (four in 2014 and six so far this year), even though they managed to clinch several mega-deals this year,” said Piers Brunner, chief executive of Knight Frank for Greater China.

“ We will see more active involvement of the insurers in 2016,” said Brunner. “Although it is unlikely we see in 2016 a repeat of the 3-fold growth from 2012 to 2013, it is reasonable to forecast a 10-15 per cent growth in 2016 given the momentum already built up this year.”

Carlby Xie, head of research. Colliers International (China) is more optimistic, and expect at least a 50 per cent jump in total investment in 2016.

Given concerns over RMB depreciation and the economic slowdown that dampened sentiment domestically, investment activities had been largely confined to tier I cities in China. With domestic growth expected to remain relatively slow, we continue to witness continued demand for international real estate opportunities as an alternative form of investment, according to CBRE.

“We do anticipate an active flow of capital into US real estate despite the Fed’s announcement of a 25 basis points hike that may result in a slightly costlier funding cost for direct property investments,” said Yvonne Siew ,Executive Director, Head of CBRE’s Global Capital Markets, China

“Reasons include the strong US economic indicators, the outlook of dollar against yuan currency , the recent ease of a 35 year-old tax on foreign investment in US real estate ie,” said Siew.

Meanwhile, Chinese individuals continue to be attracted by the EB-5 visa program that grants foreign investors and their immediate families a green card in exchange for a minimum $500,000 investment in locations designated as a targeted employment or simply acquiring residential apartments with their children’s education in mind, picking up homes in good school districts or close to universities, she said.

Brunner of Knight Frank said there has been increased investment in US commercial real estate, making it the fastest growing mature market in 2015.

“Manhattan has absorbed the lion’s share of this capital, but there has been a flurry of activity by small- to mid-cap investors in projects below US$50 million, especially in primary and secondary American cities,” he said.

Global gateway cities continue to attract the bulk of Chinese overseas real estate investment. The insurance giants, in particular, continue to splash out on trophy properties. This year investment in the UK has plateaued, but strong growth in Australia continues unabated, said Knight Frank.

In terms of type of properties, despite several large hotel deals, institutional and large-cap investors will continue to favour office properties.

‘This year we see this segment take over 40 per cent of the total transaction, on par with last year. This is supported by the relatively large pipelines coming on line in London, New York and Sydney and Melbourne in the coming years, as well as heightened economic activities that generate leasing and buying transactions,” said Brunner.

Targets for many small- to mid-cap investors, meanwhile, are more diversified from hotel, retail to logistics as these opportunities emerge in key secondary locations.

De-coupled from the uncertainties of China’s domestic economy, Chinese outbound capital is set to grow. This is not just the result of the government’s various capital liberalisation initiatives, such as the Qualified Domestic Institutional Investor (QDII) scheme, but also, perhaps more importantly, an outcome of China’s long-term national strategy both to project its trade and investment prowess globally and to ensure financial stability, says Brunner.