Regulatory issues and constraints on capital leaving the country have contributed to a noticeable cooling down of interest from Chinese investors since the booming 2014-2017 years - but there’s still a great deal of opportunity coming from China, it’s just taking a slightly different shape.
How are things changing?
There is a shift in transaction type, to smaller deals within $100million. Geographically, Sydney is still the preferred city for Chinese investors followed by Melbourne.
However, we’re also seeing interest in Brisbane, Gold Coast, Perth, Adelaide and more recently Hobart. And in NSW, I see the footprint of Chinese investors moving to more rural locations such as the Central Coast, Newcastle, Wollongong, Kiama, Wagga Wagga, and Blue Mountains.
After speaking with a number of property agents with strong teams promoting Australian properties in Asia, including Knight Frank and JLL in Sydney, and Centaline in Hong Kong, this is what I’ve been hearing:
- Chinese investors in off-the-plan projects still want to settle on the purchase... but there may be settlement delay
- Chinese investor interest in the residential market has dropped
- Chinese institution investors remain strong in looking at land bank and commercial properties with recurring yield
- There is increasing interest from investors from Hong Kong, Singapore and Malaysia. These investors are private enterprises, insurance funds, managed funds and to some extent Government funds.
Understanding Chinese investors
While it’s hard to imagine now, I was reminded by Michael Zhang, Head of China Desk at JLL Sydney, that traditionally the Chinese have not been an active group of investors into Australian property.
It’s only since the booming cycle of 2014-2017 (when foreign investors could get mortgage finance up to 80%) that they’ve risen to become one of the most active overseas investor groups, following Singapore and the USA.
Chinese investors held the largest foreign investment in Australia’s real estate sector for the years 2013/14, 2014/15, and 2015/16 - as evidenced by the approvals by the Foreign Investment Review Board (FIRB).
For Chinese investors, we need to understand their interest in foreign investment and that they are still at an early stage of going abroad since China’s ’Open Door’ policy in the 70s.
Chinese economic power is centred on those in their 30s to 50s - and they’re not as familiar with migration or sending their children overseas for secondary school education.
It’s only now, with their wealth building up and limited investment products available in China, they have started to look into overseas market, so I predict a whole new influx of investors will be awakening to the opportunities we have here in Australia - and that’s where I am working to build these relationships.
Funds are coming through Hong Kong and Singapore
While it appears Chinese investors are divesting their investment in Australia, there are increasing funds coming in from Hong Kong and Singapore. And it’s not difficult to imagine that some of these funds are actually provided by Chinese investors.
These funds are looking into investment in commercial properties such as hotels or serviced apartments, B-grade office buildings with future redevelopment uplift, as well as residential development in prime locations in Sydney and Melbourne.
For instance, an office block in the St Leonards commercial precinct has attracted over 20 inspections well before the close of EOI. Out of these interested parties, there are potential investors coming from China and Hong Kong.
Another recent example is a 200+ apartment development near Macquarie University, which sold over 50% on its first day in late March.
This project is the first for this reputable Beijing-based enterprise. It is a quality developer with various construction accreditations that operates projects in China and Hong Kong.
Also worth noting, property giants like Wanda and HNA are being instructed to offload their overseas assets immediately. Their Sydney projects were sold at a premium to another Chinese group and a US hedge fund respectively.
Why foreign investors will keep coming to Australia
Australia is seen as a safe haven for foreign investors with a number of key factors:
- Politically stable
- Similar or same time zone with Asian countries
- Advanced legal system
- High protection for individual consumers
- Transparent transaction processes
- Relatively reasonable real estate value and return
- Strong second market demand.
As a result, we expect to see a continued influx of foreign investment coming by both individuals and institutions by family asset management office, private banks, investment funds, insurance alternative investment.
And this is exciting for Stamford Capital to continue building our Asian business strategy to line up with investors in China, Hong Kong and Singapore.
I’d love to discuss opportunities with the Asian markets with you. Please get in touch.
Head of Asian Business