Overseas deals by Chinese real estate investors can be expected to grow by 10 to 15 percent in 2016, after doubling to $35 billion in 2015, according to a recent report by real estate agency Knight Frank.
Besides the natural decline in growth as the volume of deals rises, the tapering rate of increase may also be due to increased sophistication on the part of mainland investors, according to the agency’s findings in its report “Chinese Outbound Real Estate Investment: New Waves, New Destinations.”
“People are more careful with selecting projects,” David Ji, Knight Frank’s Greater China head of research said, in an interview with Mingtiandi. “They are not rushing.”
While Chinese investors are more cautious, growth of 10 percent to 15 percent is expected, albeit with the headwinds of increased competition and a move toward secondary markets, which require greater research time. Chinese investors now compete with developers from the Middle East, sovereign wealth funds from around the world, and investors from Hong Kong and other Asian countries when bidding for assets in global hubs such as London and New York.
Regulatory Hurdles Could Slow Investment Growth
While increasing competition may be making acquisitions harder to execute, there are also some new regulatory concerns in 2015, after the Chinese yuan began sliding against the US dollar last year, and capital outflows became a concern of China’s banking authorities.
“Domestically (in China), I think there is still a worry of a large outflow of foreign exchange, so that may limit some of the small to mid-cap people trying to get exchange approval from authorities,” Ji noted.
Estimates from UBS indicate that China suffered net capital outflows of $228 billion during the first four months of 2016, after a slide in the value of the yuan last year sent investors looking for overseas investments as a hedge against devaluation.
Since that time many Chinese cross-border investors have reported encountering difficulties getting government support for cross-border deals.
2016 Outlook Still Strong
Looking to the remainder of 2016, Chinese outbound investments are expected to be strong, the Knight Frank report claims, supported by a growing need for diversification from the cooling mainland domestic market.
The United States, which offers market depth and diversity, will remain the top destination for Chinese investors, and large institutions will continue to target major gateways where there is quality pipeline, strong rental and capital value growth prospects.
However, there is still vitality in other locations. London investment has rebounded, with eight deals noted in the report for the prior year. Los Angeles, Chicago, Seattle, Dallas, and Houston in the U.S. also attracted a lot of interest from Chinese investors.