China’s $US4.6 billion ($6.2 billion)-worth of real estate investment into Australia last year will grow as the types of investors and their strategies diversify and become more specific, Savills says.
China’s economic growth slowed to a post-global financial crisis low in the March quarter, but that reflected the country’s own emerging two-speed economy as northern-based heavy industries such as coal, steel and heavy manufacturing slowed and services industries in the southeastern coastal regions picked up, the real estate agency’s latest Lookingglass report says.
At the same time, the outward investment that was 10 years ago dominated by state funds and strategic needs to build energy and transport infrastructure is being replaced by private money and commercial interests. This means the scope for Chinese investors in real estate is widening as players such as sovereign wealth funds, high net worth individuals, developers, insurance companies and even banks all look for investments that suit their diverse interests.
“I expect to see continued flows into Australia,” said Simon Smith, Savills’ Asia Pacific head of research. “I don’t see any sudden reversal. At the margins, some outbound capital is being marshalled, is being curtailed, but I think the overall trend is quite clear. Outbound real estate capital capital from the mainland accelerated in 2015 and has accelerated again in the first quarter of this year. I don’t see it slowing down”.
Real estate investment has grown as investment in other industries, particularly metals and mining, has slowed, reflecting the greater evolution of China’s economy. In calendar 2015, China’s total $US13bn-odd investment in Australia also included sizeable investments in the technology and finance sectors for the first time, the report shows.
The diversified nature of real estate was clear last year, with deals such as sovereign wealth funds, such as China Investment Corporation’s $2.45bn acquisition of Investa Property Group’s portfolio of nine office towers, conglomerate Fosun International’s purchase of a 75 per cent stake in three projects in Sydney and Brisbane for just over $100m and insurer Ping An’s residential joint venture with Mirvac in Sydney.
“It’s not as simple to say that it’s China any more,” said Tony Crabb, Savills’ Australian head of research. “There are umpteen different types of Chinese buyers. They’ve all got different parameters for buying overseas, they’ve all got different motivations.”
This required vendors to have a better understanding of the market they were selling into, he said.
Evolving and diversifying investment.
Evolving and diversifying investment. Savills
“It’s not just putting up a For Sale sign, it’s a matter of timing and how that fits the investors’ timing as well,” Mr Crabb said.
The growing diversification of Chinese investors would also require Australia to set clear rules about what investments it would and would not permit, Mr Smith said, referring to the $370 million bid – pulled last week after Treasurer Scott Morrison vetoed the deal – by the Dakang Australia-led bid for S.Kidman & Co, Australia’s largest agricultural landholder.
“The US is very quick to set up a Senate inquiry and subject overseas investment to a great deal of scrutiny and will occasionally reject investments,” Mr Smith said. “At the other end, the UK very, very rarely rejects investments on the basis of national strategic interest. Australia will just simply have to find its way.”