Signs are emerging that the capital inflow from China to Australian property is slowing, but is being offset by Singaporean investors.
In the first half of this calendar year, Chinese investment in Australian real estate fell 69 per cent, compared with the same period last year.
According to Cushman & Wakefield, despite lower Chinese investment, Australian commercial real estate is on track for another robust year, with the firm’s research forecasting total investment of around $30 billion for the year.
This follows reports last week that China has put the brakes on its companies pouring big money into overseas property development, issuing rules likely to have a significant impact in Australia.
China’s State Council, or cabinet, announced the first rules on overseas investment by Chinese companies on Friday.
Areas now banned from investment include casinos and defence technology, while overseas property development and hotels are classified as “restricted”.
At the root of the latest guidance, the government expressed concern over the challenges of global investment activity, looking to reduce risks to Chinese businesses and ultimately the Chinese banking sector through closer monitoring of such investments.
James Quigley, head of capital Markets, Australia and New Zealand for Cushman & Wakefield, said in the first half of 2017, the largest source of foreign capital for Australian commercial real estate was from investors from Singapore, while Hong Kong investors were responsible for recent landmark deals in Australia and London.
“These included 20 Bond Street in Sydney and the record ??1.15 billion purchase of London’s Leadenhall Building, known as the ‘Cheesegrater’,” Mr Quigley said.
“Despite the decline in investment from mainland Chinese, Australian property investment volumes are on track for another robust year supported by investors from Singapore, Hong Kong, the US and Germany as well as local institutions such as Dexus and Charter Hall.”
He said the relative lack of Chinese investment activity in Australia is interesting given Sydney ranked as the most preferred real estate destination in ???a recent Asian investment survey.
Some of the bigger casualties include HNA, Dalian Wanda, Fosun International and Anbang, which have been put under greater scrutiny by the Chinese regulators.
Investments in film industries, sports and entertainment are now also classified as “restricted”.
The new guidelines on outbound investment effectively codify previous tightening measures and apply specific attention to overseas investment in the property and hotel sectors. The regulations are designed to reduce risk to Chinese businesses, and ultimately the banking system, by facilitating the “continuous, orderly and healthy development of overseas investment”.
Dalian Wanda has begun to restructure its business, which includes two $1 billion Australian apartment projects at Circular Quay and on the Gold Coast, plus the Hoyts cinema chain.
John Sears, the national director, research at Cushman & Wakefield, said some of the many reasons behind the decline include limited available assets, some lumpy investment in 2016 and changing regulations relating to Chinese outbound investment.
“Areas which experienced the largest drop in Chinese investment volumes half-on-half were development sites and hotels, down 85 per cent and 67 per cent respectively,” Mr Sears said.
“Investment in retail rose from a low base, just $8.2 million in the first half of 2016 with the largest transaction in 2017 being the Arena Shopping Centre, $36.6 million, in Victoria.”
Mr Sears said there are concerns about the potential impact of a further drop in Chinese investment on the Australian commercial real estate market.
“While new capital guidelines for mainland Chinese investors will mean more controlled investment, overall volumes are expected to remain firm and demand for Australian commercial real estate remain robust supported by inquiry from a variety of global sources including Singapore and Hong Kong,” Mr Sears said.
The drivers of lower investment are also a range of other local factors, particularly relating to residential development.
“For example, changing market conditions, overdevelopment in some areas and efforts by Australian authorities to dampen the residential market may have contributed to the decline by Chinese investors in development sites.”
Hotel investment in early 2016 was also characterised by a few big transactions, including W Hotel , Sydney, worth $379 million and The Ribbon at Darling Harbour, worth $131 million, which, combined with less opportunities for investment in 2017, helped result in a drop in transaction volume
Mr Sears said it was important to note that the Chinese government is not banning outright overseas real estate and hotel investments and some sectors.
“For example, logistics could receive increased interest following its inclusion in the ‘encouraged’ investment category. Additionally, research and development centres in business park-type facilities may receive additional capital allocations,” Mr Sears said. ???
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