Chinese investors continue to drive cross border capital dominating global real estate markets - $26.6 billion invested in 2016

Chinese investors continue to drive cross border capital dominating global real estate markets

- $26.6 billion invested in 2016 –

London, UK – Chinese capital was responsible for 11% of all global cross-border real estate investments last year, second only to the United States (19%). Asian real estate investors have launched themselves onto the global stage over the last few years to become one of the most important global capital exporters, with Singapore (7%), Hong Kong (5%) and South Korea (3%) also in the top ten. However it Chinese capital that has been the key driving force behind global real estate transaction volumes over the past few years, especially across the Super City1 markets, according to Knight Frank’s Active Capital research report.

Despite recent geo-economic uncertainties around the world, Chinese appetite for mega-assets seems insatiable. However, some target locations are beginning to feel uneasy around the sustainability of Chinese investment as questions are being raised on the government’s latest capital outflow controls and the health of the domestic economy.

With recent deals involving Chinese capital including HNA Groups purchase of the iconic 245 Park Avenue in New York for $2.21 billion, CC Land’s acquisition of The Leadenhall Building, also known as the Cheesegrater in London for £1.15 billion and China Investment Corporation’s securing Blackstone’s European logistics business Logicor for more than €12bn (£10.5bn), capital outflow controls are not proving a hinderance.

Also, the latest Chinese GDP growth figure, 6.9 per cent YoY growth in the first quarter this year, has dispelled doubts on the country’s overall economic health. Some of the previous concerns, such as the domestic home inventory glut, paled in comparison with impacts of external surprises like Brexit and the US election result. Even those shocks have now been gradually digested as investors have taken advantage of factors such as exchange rate dips.

Country

Cross Border Investment ($)

% of Global Cross Border Capital

United States

45,429,158,484

19%

China

26,581,134,230

11%

Canada

19,590,121,890

8%

United Kingdom

17,579,284,272

7%

Germany

16,220,224,394

7%

Singapore

16,079,998,840

7%

Hong Kong

12,046,642,875

5%

France

9,312,015,863

4%

Switzerland

9,162,322,822

4%

Qatar

7,222,685,351

3%

South Korea

6,958,996,207

3%

Andrew Sim, Head of Global Capital Markets, Knight Frank, commented: “Only a couple of years ago the global marketplace was crowded with big name Chinese insurance firms, large developers and State Owned Enterprises (SOEs). However, since 2015 we have seen more determined advances, even dominance in some markets, by private conglomerates or developers including HNA, Fosun and R&F.

“This group of investors and developers are nimble, are able to make decisions quickly and often transacting higher up the risk curve. Instead of heeding a coordinated national drive as with the SOEs, they have grown more sophisticated in their own strategies and calculations for projects. We expect to begin to see less of a rush for trophy assets and more methodical behaviours that are commonly observed from mature players.”

News Release

Chinese capital accounted for $26.6 billion of cross-border real estate transactions last year, accounting for nearly 40 per cent of all Asian capital invested. And also more than half what was invested domestically in China.

Anthony Duggan, Head of Capital Markets Research, Knight Frank, commented: “Currency fluctuations including the appreciation of the dollar, yield shift, as well as recent significant asset price inflation are amongst the risks investors still have to consider. And as the Chinese capital outflow controls persist, companies that lack previous overseas exposure and those with core business not in property will find it difficult to obtain foreign exchange clearance from the authorities.

“However, firms with Hong Kong or Singapore listings or subsidiaries have been able to raise funds as well as launch their bids from these financial hubs. Despite this, we may see transaction volumes from China reducing in some markets in the short term. This reduction may well prove to be temporary as we expect that the capital controls will be loosened as the Yuan exchange rate improves and GDP growth continues on a steadier path. Indeed, there are signs of this happening already. It was reported in April that the required balancing of inflows and outflow of cross-border Renminbi payments by financial institutions has been verbally lifted. The government policy conference later in the year will also reaffirm the country’s global expansion strategies.”

The key markets that Chinese investors are focussing on are gateway cities such as London, New York and the other Super Cities given their stability and depth. Other key locations including cities on the “Belt and Road” route, e.g. Singapore and key Southeast Asian hubs, will also continue to attract significant investor interest.