China's global real estate purchases hit new high

Chinese international property buyers are motivated by a desire to diversify their assets, hedge risks, fund an overseas lifestyle or education, or seek higher returns. Pix from Juwai.com

Published in NST Property, September 20, 2018

BUYERS from mainland China purchased RM9.5 billion worth of residential and commercial properties last year.

More than four-fifths of the investment was in the residential sector, according to Juwai.com, the No. 1 Chinese real estate website.

Chinese buyers acquired residential properties worth RM8.3 billion and commercial real estate worth RM1.2 billion, said its chief executive officer and director Carrie Law.

“There is no secret why these buyers like Malaysia. (Among them are) proximity, affordability, quality of life, and a regulatory framework that allows them to contribute to the country and feel comfortable and safe there,” she said.

Malaysia’s growing economy and commercial links to China and the Belt and Road Initiative has made the Southeast Asian country even more appealing to the investors, she said.

ADVERTISING

Law said there were some concerns recently over whether the Malaysian government would continue to welcome foreign investments, but she believed the support would continue.

“They will (support), of course, with sufficient safeguards for the country’s economic interests. Foreign investment in Malaysia means more money for the local economy. Investment leads to economic growth and job creation, and helps boost exports. All of these are good things.

“Chinese property buyers make a direct contribution to Malaysia’s economy. They are very often involved in commercial projects that further boost growth and employment in Malaysia,” she said.

CHINA INVESTMENTS SPREAD GLOBALLY

China has more billionaires than the United States. According to Knight Frank, mainland China plus Hong Kong SAR is home to nearly 14,000 individuals worth more than US$50 million (RM209.62 million).

High net-worth mainland Chinese real estate investors now control an estimated US$5.8 trillion of personal wealth, according to CapGemini.

“Much of it is easily investible, and almost half is already offshore. For these buyers, real estate overseas in 2017 was an appealing investment in an uncertain global environment,” said Law.

Last year, China became the world’s largest international commercial real estate investor, just as it did in the residential sector in 2015.

Mainland Chinese residential and commercial international property purchases last year reached a new high of US$119.7 billion, up 18.1 per cent from the US$101.4 billion that Juwai.com reported in 2016.

Since 2010, Chinese investors have acquired international properties valued in aggregate at more than US$430 billion.

According to Law, the key factor constraining Chinese international property investment growth last year was the regime of capital controls imposed by Beijing through both formal and informal channels.

Another contributing factor was a shift by Chinese residential property investors towards lower overall average prices, more specifically towards lower-priced markets.

“Looking forward through to year-end, we expect mainland Chinese commercial and residential property investment to increase within the range of three to eight per cent over the 2017 levels.

“That would bring 2018 levels up to around US$123.3 billion to US$129.3 billion globally. We believe this growth range to be sustainable and rational.” Law said separate surveys by UBS Evidence Lab and Financial Times Confidential Research show that capital controls are a relatively small factor for international property residential buyers.

“Two-thirds of Chinese overseas buyers told the UBS Evidence Lab that capital controls ‘didn’t affect me’. Financial Times Confidential Research’s monthly consumer survey shows that household demand for foreign exchange has reached its highest level since early 2016.”

She said Chinese international property buyers are motivated by a desire to diversify their assets, hedge their risks, fund an overseas lifestyle or education, or seek higher returns.

Very few today, though, are driven by the fear that helped drive investment growth in 2015 and 2016, she said.

“What we see today is better called international investments than capital flights. To serve these buyers, a number of actors have emerged to provide financing for international property acquisition with tacit approval (or at least not opposition) from Beijing.

“Some Chinese and Hong Kong institutions provide cash or financing for overseas property acquisition in exchange for assets held in China. Both bank and non-bank lenders — including property developers — in target countries are also seizing the opportunity to finance acquisitions by mainland Chinese.”

Law said the global picture for 2017 is one of plateauing investment in North America and Australasia, accompanied by rapid growth in Asia.

“The bigger a number gets, generally the slower it grows. That’s one explanation for the lower growth rate in Chinese international property investments.

The same level of growth off a larger starting point will give you a lower rate of growth.

“The trade war, lower economic indicators and other factors may seem to give the current environment a negative cast, but investment managed to grow last year despite a similar range of challenges.

We think it will grow again this year,” she added said.

Law added that when it comes to commercial property, there may be a decrease overall this year as volumes decline in North America and Europe, and remain flat in Asia.