Chinese investors and developers are targeting smaller, higher-quality real estate assets in Australia in response to Beijing’s recent restrictions on capital outflows, says a report by KPMG and the University of Sydney.
Tighter control of overseas direct investments and deal-approval regulations saw Australia’s share of China’s global spend fall 11 per cent to $US10.3 billion ($13.5b) in 2017, faring better than the United States (down 35 per cent) and Europe (down 17 per cent) in the year.
Australian commercial real estate was second only to mining in popularity for Chinese buyers, attracting one-third of all Chinese investment in Australia, worth $4.4b, or 11.5 per cent of China’s total spending on real estate globally, says the report Demystifying Chinese Investment in Australia, which was released on Tuesday.
While deal numbers were steady, the value of investments in the real estate sector fell 22 per cent from 2016.
“Australian real estate remains a key destination for Chinese capital. The macroeconomic framework is supportive, while the market is attractive from a global perspective – economic fundamentals are robust, population growth is solid, market transparency is high, and returns are broadly higher relative to comparable markets globally,” said Michael Zhang, head of JLL’s China Desk in Australia who contributed to the report.
“There has been a notable shift in the scale and type of investment into Australian real estate. Investors and developers are becoming more selective in acquisitions, with mandates increasingly geared towards higher quality investment assets and well located sites with less planning risk.’’
Mr Zhang said demand for “trophy assets and larger acquisitions” gave way to investments in the $5m to $49m range, making up 63 per cent of transactions in 2017, as more robust selection criteria steered investors to sites at the smaller end of the market.
Sydney remained the number-one destination for all commercial real estate capital, which was mainly residential development (44 per cent), offices (30 per cent) and mixed-use sites (9 per cent) deals in 2017.
Seven of the top 10 sales in 2017 were in Sydney, seen as a global financial centre and the Australian gateway for Chinese investors.
Mr Zhang said only 18 of the 63 transactions made by Chinese investors in 2017 were from first-time investors, showing repeat investors had confidence in the sector.
“This demonstrates the value and confidence gained from the local knowledge of firms already invested in the market,’’ he said.
The June 2018 report is the latest in a series of Demystifying Chinese Investment in Australia reports, by KPMG and The University of Sydney Business School.
It says Australia remains the second-largest recipient of accumulated Chinese investment after the United States, with $US99 billion invested since 2008.
SELECTED CHINESE REAL ESTATE INVESTMENTS 2017
(Property Name/Address, Chinese Buyer, Asset Class, Value)
- Black Forest Road, Wyndham Vale, VIC: Country Garden, Residential, $400m
- Bakehouse Quarter, NSW: Yuhu, Mixed-use, $380m
- 86-88 Christie Street, St Leonards, NSW: JQZ, Office, $295m
- 15 Carter Street, Lidcombe, NSW: Australia YMCI Pty Ltd, Industrial, $290m
- Fuji Xerox, 101-107 Waterloo Road, NSW: JQZ Eleven, Office, $180m
- 45-61 Waterloo Rd, Macquarie Park, NSW: John Holland/CCCC, Residential, $170m
- Fujitsu House, 15 Blue Street, North Sydney, NSW: Aqualand, Office, $169m
- InterContinental Sydney Double Bay, NSW: Shanghai United, Hotel, $139m
- 960 Donnybrook Rd, VIC: Blueways Group (50pc stake), Residential, $100m