Property financing

China’s overseas property binge is over for now, but watch for pockets of activity

PUBLISHED : Tuesday, 25 July, 2017, 4:46pm
UPDATED : Tuesday, 25 July, 2017, 7:44pm

Overseas real estate investment by large Chinese companies is likely to stay muted this year, amid tightened regulatory scrutiny, although buoyant activity may emerge from some smaller players, according to real estate consultants.

Knight Frank executive director Paul Hart said the government’s regulatory reviews on some of China’s biggest offshore asset buyers, including Anbang, Fosun, HNA Group and Wanda, have put the brakes their overseas acquisitions plans, while also sending a chill across the broader corporate community.

“Those reviews are in the short term impacting the decisions of some of the larger conglomerates, particularly in the insurance sector,” he said.

Non-financial outbound direct investment by Chinese companies fell 45.8 per cent year on year to US$48.19 billion in the first half, according to Ministry of Commerce data released earlier this month. In June alone, outbound investment dropped 11.3 per cent from a year earlier to US$13.6 billion.

Chinese foreign investment in industries like property, hotels, cinemas and entertainment have dropped 82.5 per cent year on year, the ministry noted.

Deals by Chinese companies in the hotel, property and entertainment sectors surged 233 per cent year on year in 2016, reaching US$15.86 billion across 33 different transactions, according to consulting firm Mergermarket.

But only 14 deals with a combined value of US$1.6 billion have been recorded in the first half, the lowest for the period since 2013.

Hart said the caution displayed by mainland banks this year is another damper on activity.

“As the central government looks to understand more about offshore capital flows, they will also look at the roles which the Chinese banks play,” he said, adding that banks will also come under heightened scrutiny by regulators.

A Chinese policy instrument is buying into a Vancouver mountain, and Canadian naivete is an inadequate response

“I think another trend will be mainland developers forging relationships with other sources of debt,” he said. “So they will look forward to Hong Kong banks, Singaporean banks or other international banks.”

Meanwhile, as larger conglomerates face barriers to overseas investing, more opportunities are flowing to smaller companies.

“There are a number of players who do not have the same degree of exposure who are now looking to emulate [the larger players] and to go into that market,” he said.

He said the firm is working with a few companies seeking to shift focus from commercial to residential projects.

Other analysts noted that the reluctance of banks to fund overseas acquisitions will put a damper on deal-making.

“The investment pace of Chinese capital is expected to remain slow as investors need to engage in longer negotiations with financial institutions,” said Stanley Wong, executive director of CBRE Hong Kong Capital Markets.

He noted that Hong Kong’s investment market in the first half saw HK$77 million of big transactions, up 43 per cent on year and the most in four years.

“Mainland corporates who have existing offshore money are still very active in the market,” Wong said.