Institutional purchases rise 53% on big deals from Anbang, China Life and CIC
Chinese real estate investment abroad rose by more than half last year to a new high, highlighting the potentially disruptive impact of tighter capital controls imposed late in the year to discourage outbound money flows.
Overseas investment from China in residential, commercial and industrial property totalled $33bn in 2016, up 53 per cent from a year earlier, according to global real estate group JLL, as Chinese buyers snapped up office buildings, hotels and residential land.
The US was the most popular destination for the second consecutive year, drawing $14.3bn of investment, followed by Hong Kong, Malaysia, and Australia. The UK ranked fifth, down one spot from 2015, but in value terms investment rose to $2.2bn, up from $1.8bn in 2015. The UK’s best year was 2014, when it drew $4.9bn to rank first.
The biggest deal of the year was Anbang Insurance Group’s $6.5bn purchase of Strategic Hotels and Resorts from private equity group Blackstone. Other big deals included hotel purchases by China Life Insurance and New York office deals by China Investment Corporation, the sovereign wealth fund, JLL said.
“We believe that Chinese investors will continue to be major movers of capital into global real estate for many years. But a similar increase in 2017 may be challenging given the recent discussion about China monitoring its capital outflows,” said David Green-Morgan, research director for JLL in Singapore. “Many of the biggest players already have a significant amount of capital outside the country, so their investment decisions are not so reliant on Chinese governmental scrutiny.”
In a joint statement last month, four agencies including the People’s Bank of China and the State Administration of Foreign Exchange mentioned real estate among several categories of foreign investment that they would target for greater scrutiny.
While hotel, office, and residential land account for the large majority of overseas deals, Chinese investors are increasingly interested in industrial parks and logistics centres. Foreign industrial parks are an element of the government’s “One Belt, One Road” plan to establish infrastructure links with Africa, central Asia and the Middle East. The parks are intended to house the operations of Chinese companies operating abroad.
In May, President Xi Jinping toured the construction site of a Chinese-backed industrial park in Belarus. Sichuan-based aviation services provider Haite Group has partnered with the Moroccan government to build a $10bn industrial park in Tangier covering 1,200 hectares.
The JLL data covers transactions by institutional investors but does not track home purchases by Chinese individuals, who have become a major force in markets such as New York, London, Vancouver and Sydney. Chinese buyers accounted for 27 per cent of all purchases by foreigners of US homes from April 2015 to March 2016, according to the National Association of Realtors, a figure that includes buyers from Hong Kong and Taiwan. Such purchases accounted for $27bn in the period.
A survey by the Hurun Report found that property is the most popular form of overseas investment for Chinese with $1.5m or more. Of this group, 60 per cent plan to invest in property over the next three years, implying 800,000 prospective buyers.
“Prices in major Chinese cities have risen so fast in the past year that an overseas house seems to offer good bang for your buck,” Rupert Hoogewerf, chairman of the Hurun Report, said in October.
But individual purchases could be especially vulnerable to new capital controls. This month authorities tightened enforcement of the $50,000 limit on foreign exchange conversion by individuals. The ability to pool quotas of friends and family was a popular loophole that Chinese buyers exploited to obtain hard currency for overseas home purchases. That is now more difficult.