Outbound real estate investments by Chinese companies slid 63 percent last year to reach a four year low of $15.7 billion in 2018, according to a report just released by Cushman & Wakefield Greater China Research.
Cushman & Wakefield’s team of China-based experts predicts that Chinese buyers will continue to buy more cautiously in 2019, as policy pressure and tighter lending conditions squeeze corporate balance sheets.
The transaction total for 2018 represents a $26.5 billion drop from the $42.2 billion that Chinese investors and developers spent acquiring properties outside the mainland’s borders in 2017, according to the global advisor on real estate transactions, with the trend now running toward asset disposals by the mainland players.
Going to the Investment Source
The property consultancy’s findings on Chinese outbound real estate deals are distilled in Cushman & Wakefield Research’s 2019 Outbound Investor Intention Survey, which was produced by the company’s research team during the fourth quarter of 2018.
“Every investor pursues their own strategy,” noted James Shepherd, Managing Director of Greater China Research, Cushman & Wakefield. “But by gathering the ideas of these mainland industry leaders, and comparing common points of view, we were able to pull out some common themes from the varied responses.”
For the report, C&W’s researchers received responses from 51 of the mainland’s top investors in overseas real estate assets, mapping out the intentions of these industry leaders regarding the investment goals of these developers, fund managers, banks and other corporates for the new year. The survey, which received responses from investors responsible for over RMB 280 billion in offshore capital, looked at overall volume targets, as well as breaking down these investment goals by location and property sectors.
The research team supported this forward-looking survey with transaction level data for countries around the world for 2018, to compare intentions for 2019 with performance last year.
2018’s Big Freeze
In contrast to the expansion from 2009 onwards which saw China’s outbound real estate investments reach a peak of $42.2 billion in 2017, last year saw the first drop in cross-border deals since 2014, when outbound transaction volumes dipped by 3.5 percent compared to 2013.
Compared to the softening in the markets five years ago, investors now seem to be making a much sharper turn. Some 84 percent of investors surveyed by Cushman & Wakefield Greater China Research indicated that they had either frozen their overseas real estate allocations in 2018, or reduced the amount of capital that they were spending on cross-border deals compared to the previous year.
Regulations and Monetary Practices Take a Toll
The biggest barrier to purchasing overseas property assets is proving to be the mainland government’s ongoing controls on debt and outbound capital flows, according to Cushman & Wakefield’s findings.
“65 percent of respondents to our survey said they were significantly or severely impacted by capital controls,” Cushman & Wakefield’s Shepherd explained. “While this shows the effect of government policy, it also indicates that a lack of investor demand was not the reason behind the change, which leaves the door open to a rapid recovery in deal volumes, should policy or the debt situation change in the future.”
While the capital controls policies were first put in place in 2017, Cushman’s findings indicated a significant jump in the impact of the official measures as the percentage of respondents indicating an impact jumped by 15 percentage points – up from 50 percent in the first year under the policies.
The timeline for any potential change in capital policies remains unclear, however, with only 18 percent of the survey respondents indicating that they expect the funding environment to improve in 2019.
Demand Still Strong
While investors have been stymied by policy shifts over the last two years, sentiment towards investing in overseas real estate continues to be positive, according to the consultancy’s findings.
Apart from some issues related to trade frictions with the US, only eight percent of the survey respondents disagreed that Chinese real estate capital will be more welcome internationally in 2019, showing that most investors remained positive regarding relations with other nations.
Among global destinations, Australia was among the most favoured, with some 24 percent of respondents indicating that they intend to invest in real estate down under in 2019, after receiving $1.7 billion in Chinese real estate investment to rank as third most popular overseas destination after Hong Kong and the US during 2018.
This sponsored feature is provided by Cushman & Wakefield Greater China Research. To find out more, please download the report here.