Global Chinese investment

Wealthy Chinese individuals look to international markets for capital security and to diversify their portfolios.

21 January 2014, Words by Paul Tostevin

 

Chinese cross-border investment into global real estate markets has risen rapidly since the global financial crisis of 2008. Wealthy Chinese individuals, with limited investment opportunities at home, have increased their overseas investment rapidly as they have sought to diversify portfolios, seek capital security and find a foothold in international markets.

Mainland China, when combined with Hong Kong (through which a large proportion of mainland China investment passes) is the second largest source of cross-border real estate investment in the world after the US. In 2013 to date, $23.7 billion cross-border investment has flowed from China and Hong Kong. Money invested directly from Hong Kong is now down 42% on 2007 volumes, but Chinese direct investment is up 1165%.

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Private capital is particularly important in the domestic Chinese market. China saw $152 billion private capital investment in the year to October 2013, according to RCA, accounting for half of all transactions in the period. This is well ahead of even the US, where private capital transactions stood at $85 billion in the year to date, accounting for 34% of all transactions.

It is this private capital, particularly money flowing into domestic property, that was in the first wave of Chinese cross-border investment. Those Chinese with overseas business interests were among the first to invest abroad, followed by a second wave of buyers seeking property for their offspring (often bases for student children), or to achieve permanent residency.

These buyers sought out established, international markets in jurisdictions that have cultural ties with China or with a large Chinese migrant population. Hong Kong, Macau and Singapore, have been followed by other top tier global cities with Chinese diasporas such as Vancouver, London and Los Angeles. We anticipate that a third wave of investors seeking income will follow, chasing higher yields in a wider range of locations than previously.

By total value, it is the big ticket investments by Chinese institutions that are really starting to make waves. Major investments in commercial projects, development sites and trophy buildings have been made around the globe. The biggest deals have taken place in the US and UK, followed by Singapore, Japan and Australia. Chinese buyers have taken advantage of the revaluing of real estate assets in North America and Europe to snap up what look like bargains in currency exchange, comparative pricing and yield terms.

Major investment

In London, ABP China recently made a £1 billion direct investment in a 35-acre site in the Royal Docks to deliver a 3.5 million sq ft office complex targeting Chinese businesses. In New York, Soho Property has spent more money on Manhattan real estate than any international investor in the last three years. Soho’s purchases included a partnership in a 40% stake in America’s most valuable office tower, the General Motors Building, for $700 million. Partnering with a local player is a common approach, tapping into native market knowledge, while a minority stake can avoid higher taxes triggered when a non-domestic entity has a controlling stake in some markets, notably the US.

 
 

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Paul Tostevin

Paul Tostevin

Associate Director
World Research

Savills Margaret Street

+44 (0) 20 7016 3883