Chinese outbound investment to reach $15bn by year-end

Total real estate investment by Chinese investors beyond their home turf is estimated to reach $15 billion by year end, according to a report by London-based property consultancy Knight Frank.

This year has been seen many landmark property deals by Chinese insurance companies, sovereign wealth funds and developers, as well as high-net-worth (HNW) private investors in the overseas markets – the recent $2 billion acquisition of New York’s iconic Waldorf Astoria hotel by the Chinese insurer Anbang being only one example.

While the majority of investments so far have been in the gateway cities of Australia, the US and the UK, some Chinese investors, particularly the HNWs, are beginning to branch out and explore opportunities in markets such as Los Angeles and Miami in the US and Australia’s Gold Coast, the report stated. Within Asia, Johor Bahru in Malaysia, Jeju in South Korea and Taipei in Taiwan have started attracting private wealth as well. 

According to Thomas Lam, senior director and head of valuation and consultancy at Knight Frank, these “hot spots”currently offer a higher yield as compared to London, New York and Sydney. “Compared with key Chinese gateway cities such as Beijing and Shanghai, a number of recent investment hot spots have shown a discount in prime residential prices,” he said. “For example, prime apartment prices in Los Angeles and Miami  are both about 25 percent lower than Shanghai, drawing significant interest from HNWs in China.”

These private investors, together with small to medium-sized state-owned enterprises and private developers, form what the report termed the “fourth wave of investors” developing an overseas real estate strategy. In comparison to the other classes of investors, however, their strategy isn’t fully understood yet.

The preferred investment of insurance companies and equity investors, known as the third wave, is in core and higher-yielding assets, while sovereign wealth funds invest in landmark trophy assets. For developers, overseas investment is all about diversification of their portfolio. Private investors, on the other hand, are harder to predict and track, according to the report.

This surge in outbound investment can be largely attributed to macroeconomic fundamentals, both in the local and international markets. “Investors today are shifting their focus towards sustainable returns in the long term,” said Neil Brooks, head of capital markets for Asia-Pacific at Knight Frank. “The key factors for Chinese investors are the policy push from the Chinese government to diversify into other countries, a softening domestic market and the pull from higher returns available in overseas markets.”

The numbers are only set to increase in the coming years. As per the report, only four of the top 20 Chinese insurance companies have made offshore investments, while 40 percent still are contemplating an overseas expansion.