Asian Property Review chats with Knight Frank’s Head of Research & Consultancy, Greater China, David Ji and Savill’s Head of China Research, James Macdonald on the latest phenomenon in global real estate – the Rise of Chinese Real Estate Investors.
- What are factors that have spurred Chinese investors to invest in overseas property in a big way?
David: The increased competition in the domestic housing market was one of the key drivers for the surge in Chinese outbound real estate investment. This trend is also supported by the growing need for diversification from many heavyweight domestic conglomerates in China.
James: Until recently, the appreciation of the RMB was a factor in investors’ decisions to invest in overseas markets, especially after the GFC and the weakening of other currencies as well as the fall in asset prices. As China continues to integrate with the rest of the world (tourism, business and family) and gain a greater understanding of overseas markets, it is natural that Chinese home buyers will seek to invest more in international property markets.
Other factors include migration for a better quality of life in terms of culture, environment, community, healthcare, food safety and air quality as well as for their kids to stay while studying overseas.
Policy support in terms of citizenship and proinvestment policies has been actively promoted by certain governments with many Chinese nationals exploring this as a route to migrating overseas. An example is the EB5 visa program in the US; many countries also offer citizenship in return for real estate investment (Malta, Cyprus, Portugal, etc.)
For the wealthier ones, this forms part of their asset diversification strategy for security of their wealth. For property developers, expanding overseas is a way of diversifying their revenue streams, raising their international profile and learning from overseas partnerships. - Do you have statistics in terms of top 10 most popular countries Chinese invest in and the amount invested (real estate sector)?
David: Some of the most popular countries include the US, UK, Australia, Malaysia, Singapore, Canada, Japan, France, Italy and Germany.
James: There is no reliable information on the exact amount of money invested by individual Chinese national in overseas residential markets though the top five markets should be the US, Canada, Australia, UK, Hong Kong and possibly Malaysia. Other countries might include Japan and some European countries such as Spain and Portugal. - Do you see this trend continuing with an even higher number of Chinese investing overseas in property notwithstanding a slowdown in China?
David: With the economic slowdown in China, more wealthy Chinese have now seen increasing need to diversify their assets into the overseas markets to reduce risk. As a result, this trend is likely to continue in the coming few years.
James: Certainly, we see little slowdown in interest in buying overseas properties at the moment, though the pace of investment may slow in the short term as a result of capital controls. Also, the target for investment may shift depending upon market fundamentals in the recipient countries. - Do you see countries starting to put brakes on increasing Chinese investments e.g. Australian clampdown on property loans for overseas buyers?
David: Australia and the UK have already launched measures to curb foreigners buying properties. This may help to slow down Chinese investment activities a bit, but we do not expect a drastic decrease for Chinese outbound investment simply because of these measures. Currencies, stock market and global economic trends also have some impact on this investment.
James: Countries are unlikely to place restrictions on investment from overseas nationals from a specific country, however, if the flow of capital pushes locals out of the property market and inflates prices out of reach of normal citizens, governments are likely to debate and potentially implement polices to protect local buyers. - How will this change the property ownership landscape worldwide in the next 5 years when more and more properties are owned by the Chinese Mainlanders?
David: In the next five years, Chinese buyers will increase their proportion of property ownership around the world to become one of the major buyer origins. For example, China has already become the largest origin of international home buyers in the US, surpassing Canada in 2015.
James: Recipient countries have received large injections of capital from many overseas countries in the past, whether they be Russia, Middle East or Japan. These countries’ citizens looked to diversifying their investment into overseas property markets in the same way as Chinese citizens are doing now. Recipient countries have been able to adjust to this new capital, making their respective property markets stronger and more diverse. Once prices rise to a certain level, investors will tend to turn their attention to more affordable markets. Issues can arise when housing stock is not utilized properly e.g. standing vacant, which can inflate local rental rates. Local housing authorities may look at penalising investors who do not lease out their units in order to encourage them to place them on the market. - How could property investors from other countries leverage on this worldwide property buying spree of the Chinese?
David: Property investors can invest in areas popular with the Chinese. For example, buying houses in areas with schools that are popular with Chinese students. However, there is a need to investigate factors drawing the Chinese buyers, such as local immigration, taxation and regulatory rules as well as airlines linking the city with Chinese mainland.
James: The simplest way is to sell into the wave of Chinese capital that is flowing into overseas markets and use hard-earned knowledge to identify the next big market where Chinese home buyers are likely to invest. Property investors from other countries could partner with Chinese developers who are looking to create joint ventures with local partners who have a better understanding of the domestic market. Likewise, they could tie up with Chinese companies as a way of gaining exposure to the Chinese markets and other third party markets as well as a way of leveraging Chinese capital. - Describe how Chinese overseas property investments have impacted the property markets in Asia.
David: Some of the largest Chinese developers, including Greenland, Country Garden and Agile Property, have invested in development projects located in Malaysia and Singapore. This helped to increase supply in these countries.
James: The most obvious impact has been in the Hong Kong and Singapore city states, where the wave of capital from China pushed property prices to record highs and forced local administrators to enforce significant stamp duties on overseas purchasers as a way to protect local home buyers. Chinese developers have also become a key player and source of capital in many emerging markets, helping accelerate the development of property markets and stimulate economic growth.
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