SHANGHAI--(BUSINESS WIRE)--In 2016, China's total overseas investment into commercial real estate set a new record high of US$38.3 billion, up 49% from 2015, according to China Outbound Investment Capital Watch Q4 2016, released by DTZ/Cushman & Wakefield, a global leader in commercial real estate services.
The U.S. was the top overseas destination for Chinese investors, recording a more than fourfold increase from 2015 to US$18.3 billion. Chinese investment also increased in Hong Kong, South Korea, the UK, Canada and Germany. In the UK, investment volume jumped 32% y-o-y on the back of investors taking advantage of a weak pound.
James Shepherd, DTZ/Cushman & Wakefield's Managing Director Research, Greater China said: "Many Chinese investors believe there is still some growth left in the U.S. dollar’s appreciation to the yuan whereas some other major global currencies may seem to carry more risk of decline. At the present time it would appear that for major corporate investors the U.S. will see a greater impact on real estate investment volumes from China depending on the stance adopted towards China and Chinese investment by the incoming U.S. President."
For private residential property investors, it is possible they will prove to have a more resilient interest in the U.S. property market with motivating factors such as education and lifestyle being factored in rather than simply a demand for pure investment performance.
The office market absorbed the lion's share of Chinese outbound investment at just over 45%, according to the report. Hotel deals surged 13 percentage points over 2015 to capture a 27% share of investment at US$10.3 billion, a surprisingly high level that may be difficult to match in 2017. Investment in development sites fell 18 percentage points from 2015 to account for a 15% share. The retail sector recorded 3% of transactions, while senior housing emerged with a 2.5% share of investment and seems set to grab additional capital ahead.
Government Controls on Capital Outflows
As a result of a steep US$69.1 billion drop in foreign reserves in November down to US$3.05 trillion, the Central government tightened controls on overseas investments in late November 2016 and increased scrutiny on currency exchanges of the permitted US$50,000 annual quota for individuals. The new measures include: deals over US$10 billion are banned; deals of more than US$1 billion in sectors unrelated to a company’s core business will be curbed; and real estate investments of more than US$1 billion will be curbed.
Regarding the new policy, James Shepherd responded: "Protecting the value of the country’s massive foreign exchange reserves is a top priority for the Chinese government, but there are also a number of other priorities that they are having to address at the same time. It’s a fine balancing act. However, though the government is carefully monitoring the exchange rate and seeking to have tight control over the capital outflows from China, it still appears that they are very much committed to allowing Chinese companies to go global and diversify their holdings."
Catherine Chen, DTZ/Cushman & Wakefield’s Senior Manager, Head of Capital Markets Research, Greater China commented: "Demand for outbound investment will likely remain strong in 2017 as Chinese investors continue to look for diversification on the back of the expectation of lower cap rates of core assets in China. Nevertheless, the recent government controls on capital outflows will likely lengthen the time it takes to complete a transaction, and as a result we expect deal volume to decrease slightly in 2017."
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