Led by Anbang Insurance Group’s acquisition of Strategic Hotels and Resorts from Blackstone, China’s cross-border investments in commercial and residential property in 2016 hit a record $33 billion, a year-on-year jump of 53 percent, according to a recent report from property consultancy JLL.
Anbang’s $6 billion-plus hospitality acquisition involved 15 properties, including New York’s JW Marriot Essex House and Washington’s Four Seasons, and was the second largest Chinese acquisition of a US company in history. In April of 2016, Anbang walked away from an even bigger $14 billion deal with Starwood Hotels and Resorts Worldwide after a back and forth battle with Marriott International
Coupled with HNA’s $6.5 billion for 25 percent of Hilton Worldwide Holdings – the PRC had a seemingly insatiable appetite for foreign hotel-based investments this past year. Portfolio sales of hospitality industry real estate helped drive China’s 2016 total despite a dip in real estate investment volumes globally.
Capital Controls Set to Bite in 2017
While 2016’s numbers were up, many potential Chinese buyers of overseas real estate may find their global ambitions inhibited this year by government moves to control the currency and restrict outward capital flows.
Speaking of the challenge of repeating 2016’s outward investment performance, David Green-Morgan, JLL’s Global Capital Markets Research Director sounded a cautionary note. “We do believe that Chinese investors will continue to be major movers of capital into global real estate for many years to come,” Green-Morgan said. “But a similar increase in 2017 may be challenging given the recent discussion about China monitoring its capital outflows.”
Preceded by eight-year lows for the RMB and fearing a “psychological threshold” of seven yuan to the US dollar, China’s currency had a briefly volatile reaction to US markets in early 2017 but quickly stabilized due to interference from the People’s Bank of China. The State Administration of Foreign Exchange’s restrictions on overseas loans, however, may have knock-on effects that could hurt China’s growth prospects for overseas acquisitions in 2017.
Major Mainland Investors Remain Active
While Chinese government restrictions on capital flows have damped the outlook for major acquisitions by mainland players this year, some deals continue to get done. Fosun has already doubled down in 2017 by reportedly purchasing a historic building in Moscow for $168 million, and picking up an office block in Frankfurt for $53.5 million.
China’s largest buyer of global real estate, sovereign wealth fund CIC, has also indicated that it intends to boost its acquisitions of overseas assets in 2017.
Despite 2016’s surge of activity from Chinese buyers, overall real estate investment volumes slid to $640 billion in 2016, down from $704 billion in 2015, and $707 billion in 2014 respectively, according to figures from JLL.