Overseas property

Top five countries for Chinese property investments

Chinese buyers are setting records in overseas property purchases across the globe. According to Juwai, a leading international broker specialising in Chinese investors, they spent an eye-watering USD 52 billion on foreign property in 2015, up from USD 10 billion just three years ago. Knight Frank’s USD 30 billion estimate is certainly more conservative but one thing is for sure: the spending spree has been epic and mostly targeted English-speaking nations.

1. USA: leaders on the world’s biggest market

Chinese investment activity influences many areas of the U.S. economy

In 2015, Chinese buyers spent about USD 28.6 billion on residential property in the U.S. according to National Association of Realtors (NAR), twice as much as the previous year and much more than any other foreign buyer segment.

Investors from the Middle Kingdom distinguish themselves by the size of their budget. On average, Chinese spend USD 831,000 per house, compared to just USD 499,600 for other international citizens and USD 232,500 for Americans. One explanation as to why they spend so much is that they are particularly active in America’s most expensive cities.

Commercial real estate in New York, and Manhattan in particular, attracted USD 5.78 billion last year, five times as much as in 2014. USD 17 billion was deployed into commercial real estate between 2010 and 2015, including hotels and office towers, half of which was invested last year to a recent study by the Asia Society and Rosen Consulting Group.

In 2015, they became the top foreign buyer nation for the first time, concentrating their focus on New York, Los Angeles, San Francisco, Seattle and Chicago. Most deals by Chinese were closed in California (about 30%) followed by Washington state (8%) and New York (7%).

These investors are motivated by America’s investment climate as well as educational and lifestyle opportunities, not to mention the strong legal framework. For this reason, property near good schools and universities is most popular.

2. Australia: stronger Yuan makes property cheaper

Sydney is one of the top investment destinations in Australia

By Juwai’s estimates, Chinese spent USD 5 billion on Australian real estate in 2015, which is a substantial increase on the previous year. The rise is mainly attributed to the strengthening of the Yuan (RMB) against the Australian dollar (AUD) that save created a tangible financial incentive to buy. From March 2015 to March 2016, the Yuan gained 7%, enabling investors to AUD 50,000 on the purchase of an average Australian home.

Commercial real estate dominated all other forms of Chinese investment in Australia for the second year running, capturing 45% of the total deal volume in 2015. Between January and September of last year, they injected approximately USD 3.34 billion in commercial property. Experts note the sustained interest in New South Wales and Victorian property markets according to KPMG.

Non-financial drivers are the same as those in the U.S.: good schools and universities, lifestyle, a stable political and business environment as well as a rather big Chinese community. The most popular cities are Sydney, Melbourne, and Brisbane.

3. New Zealand: interest increases with easing regulations

Auckland is definitely the most promising place for Chinese investors

Investments into real estate in New Zealand are expected to pick up again after a slight cooling off last year when Chinese officials restricted the movement of capital for trade, investment and business outside of the mainland. The industry is now braced as activity is on the rise: by March 2016 residential house prices in Auckland were up 11.6% year-on-year. However, activity is hard to track as authorities do not keep any data on Chinese buying houses.

Easier laws at home on how they spend their money abroad could lead an influx of nearly USD 11 billion over the coming years into NZ residential and commercial property, which remains a stable object of interest for this nationality.

However, a sudden uncontrolled flood of capital into an already extremely hot market like Auckland, coupled with low inventory has many real estate players fearful. On the other hand, according to Andrew Taylor, co-chief executive of Juwai, the local economy would benefit from the extra funds.

New Zealand offers superb nature and outdoor activities and promising business opportunities, but needs to improve the frequency of direct flights to mainland China and the education system, which has yet to seduce these foreign buyers. The most popular cities are Auckland, Christchurch and Queenstown.

4. UK: Expensive property and elite education

Prices for real estate in London have shot up in recent years

The United Kingdom accounted for 64% of the total volume of investments into Europe from China between 2014 and 2015. According to Savills, investment volumes this year will likely exceed last year’s GBP 1.2 billion total, and already stand at GBP 560.3 million for January and February 2016 alone.

Residential real estate in the heart of London is the most popular, particularly in the West End: Covent Gardens, Aldwych and Soho where activity was up 76% on the previous quarter and prices are 31% higher than three years ago. These districts are all within walking distance of internationally renowned universities.

Chinese developers are also entering the UK market looking for added value opportunities with high returns on mixed use and residential projects within London. Two key purchases so far this year are Ludgate West and the Helicon Building for GBP 145 million each.

In the eyes of the Chinese, the UK is a country of prestigious education, “correct” English, a safe investment environment and a gateway to the world of business and entertainment. Last but not least, it is the homeland of culture from Shakespeare to Sherlock Holmes. Recent meetings in both China and the UK are looking to build a solid relationship of mutual benefit, enshrined by the recent visit of President Xi Jinping to London.

5. Canada: strong communities attract newcomers

Vancouver is a popular investment location with spectacular views

There are two main destinations in Canada for Chinese buyers: Vancouver and Toronto. Both cities have large Chinese communities and a good supply of new property that attracts clients despite skyrocketing house prices.

The biggest motivation here is education and many purchase condos for their children near universities with a preference for new-builds. They also choose standard four-bedroom homes priced around CAD 1.3 million. Chinese funds have been financing the skyscraper boom that has transformed Canada’s skyline according to Forbes.

The property market in Canada might be very hot, but prices are still half those in Manhattan, which makes it particularly attractive to Chinese. However, the cancelling of the preferential investor visa programme means that some investors will be heading to more welcoming countries instead.

International economic instability coupled with a commodities slump has affected the Chinese regime and at home the political situation is getting more intense. Outbound capital flows towards stable countries will continue, however experts also believe lesser-explored destinations like Spain that have cheaper visa programmes will become more attractive now that the UK and Canada have tougher restrictions. At the same time, America’s EB-5 programme, which delivered over 9,000 green cards to Chinese investors last year (and families), is likely to undergo a similar process by the end of 2016.

Ivan Stupachenko — Tranio.com

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