Chinese Investors Healthy Appetite For Australian Commercial Property

According to a new CBRE report Chinese investors were the second largest buyers of commercial property in Australia by close of the first quarter of 2015, behind Singapore and surpassing the US, with one-quarter of the total US$4 billion of Chinese overseas investments in Q1 2015 going towards Australian properties.

Chinese investors accounted for one-third - or AUD$3 billion - of the AUD$9 billion in foreign capital invested in commercial property assets in Australia. This continues the strong Chinese investment sentiment in 2014 into Australia, with 15% of US$10 billion - the overall Chinese outbound capital in 2014 - being funneled into the country.

These figures demonstrate extremely high weightings relative to the size of the local economy, which is under 2% of global GDP. The CBRE ViewPoint also pointed out that Sydney and Melbourne were the primary targets.

Frank Chen, Executive Director and Head of CBRE Research, China, commented, “capital flows from China to Australia are complemented by growing numbers of Chinese tourists, students, settlers and an increased bi-lateral trade relationship. Australia competes with other global markets for Chinese capital; however, the aforementioned factors appear to provide a longer-term underpinning for the capital flow now being experienced.” Chen added, “flows from China into global markets are expected to remain firm, with potential upside, as regulatory changes over the past three years have allowed a higher investment allocate into real estate for life insurers, rising from 10% to 30%, and offshore investment to a limit of 15% across all asset classes.”

In particular, inner city development sites, within a 5km radius of the CBDs of Sydney, Melbourne and Brisbane, have been a primary target due to Chinese investors looking to diversify their interests offshore into relatively safe markets. CBRE’s ViewPoint highlights that 36 of the 116 property assets sold in that radius in the 12 months to April 2015 were acquired by Chinese investors (16 being in Sydney, 15 in Melbourne and five in Brisbane).

Additionally, residential values in top Australian cities have improved relative to commercial developments, which have resulted to increased acquisitions of office assets for residential use. Recent Sydney sales where residential redevelopment was a driver include Dalian Wanda’s purchase of Goldfields House, Shimao Group’s acquisition of 175 Liverpool Street and Aoyuan buying 130 Elizabeth Street. Obsolete sites in the Melbourne CBD, such as former Carlton & United Brewery, have also been purchased with potential for conversion to residential use.

Johnny Shao, Executive Director of Investment Properties, CBRE China, commented, “Australian cities are considered highly livable to offshore investors and occupiers of apartments due to the stability of the Australian economy, the strong education sector and cultural diversity. This dynamic gives developers confidence in delivering the apartments, which is fuelling continued inflows of Chinese investment capital. In regard to existing office, retail and industrial investment assets, Chinese interest is definitely strengthening from an already significant level, with both high net worth individuals and insurance companies showing increasing interest.”

Johnny Shao continued, “weakening of barriers through initiatives like the recently enacted China-Australia Free Trade Agreement, the strengthening of bi-lateral trade linkages, the expectation on further depreciation of the Australian dollar against the Chinese renminbi, and the high demand from high net worth investors for the Significant Investor Visa scheme will sustain capital flow from Chinese investors in the coming years.”

 

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