Political pressures and the depreciation of China’s renminbi will cause Chinese property investment to pivot towards Asia from 2017 onwards, said a research paper from global property consultancy Colliers.
The paper titled 2017: the Year in Which Asian Real Estate Capital Flows Reverse – Fact or Fantasy? was presented at the PERE Asia Summit last week. The report said that in 2016 Chinese foreign real estate investment reached $37.2 billion – split between $25.2 billion invested outside of Asia and $12 billion within it.
But, it suggests that the most important factor in the growing overseas appetite of Chinese investors has been concerns of a depreciating currency as the renminbi dropped by 13 percent against the dollar between 2013 and 2016.
“We think concerns about further renminbi depreciation has been the key factor in the recent surge in China to US property investment,” Andrew Haskins, executive director, research, Asia at Colliers told PERE. “However, the bulk of that depreciation has probably already happened.”
Haskins added that to expect “further substantial renminbi depreciation” against the US dollar, one needs to be both “rather optimistic about the US and rather pessimistic about China”. Moreover, it is reasonable to suspect that “the Chinese authorities may put quiet pressure on financial institutions to moderate their investment activity outside Asia, notably in the US”.
The report points to President Trump’s protectionist rhetoric and relations between the two superpowers cooling as potential reasons why Chinese groups may find it politically difficult to continue heavily investing in the US.
Additionally Chinese authorities would prefer to see investment in the “One Belt, One Road” markets of southeast and Central Asia as internalization of the renminbi and expanding China’s influence remain two priorities of the current administration.
Data from the report showed that last year Chinese investors’ $12 billion Asia-focused property investment only accounted for 17 percent of the total intra-regional capital. Yet, that is still up from 7.9 percent in 2015. Haskins predicts from next year China will take up an even bigger proportion of this intra-regional activity.
“We think it probable that Chinese investment in foreign property will continue at a high rate, but that it will be increasingly directed towards Asian markets,” said Haskins.