_Chinese capital continues to roar
Asian real estate investors have launched themselves onto the global stage over the last few years to become one of the most important global capital exporters. Asian capital was responsible for 28 per cent of all global cross-border real estate investments last year, with Chinese money responsible for 40 per cent ($26.6bn) of that total.
Chinese capital has been the key driving force behind global real estate transaction volumes over the past few years, especially across what I call the Knight Frank Super City1 markets.
Despite recent geo-economic uncertainties around the world, Chinese appetite for real estate seems insatiable. However, some target locations have been beginning to feel uneasy around the sustainability of Chinese investment as questions are being raised on the government’s latest capital outflow controls and the health of the domestic economy.
With recent deals involving Chinese capital including HNA Groups purchase of the iconic 245 Park Avenue in New York for c.$2.21 billion, CC Land’s acquisition of The Leadenhall Building, also known as the Cheesegrater in London for c.£1.15 billion and China Investment Corporation’s securing Blackstone’s European logistics business Logicor for more than €12bn (£10.5bn), capital outflow controls are not proving a hindrance for all investors.
Also, the latest Chinese GDP growth figure, 6.9 per cent YoY growth in the first quarter this year, has dispelled doubts on the country’s overall economic health. Some of the previous concerns, such as the domestic home inventory glut, paled in comparison with impacts of external surprises like Brexit and the US election result. Even those shocks have now been gradually digested as investors have taken advantage of factors such as exchange rate dips.
Only a couple of years ago the global marketplace was crowded with big name Chinese insurance firms, large developers and State Owned Enterprises (SOEs). However, since 2015 we have seen more determined advances, even dominance in some markets, by private conglomerates or developers including HNA, Fosun and R&F.
While many investors maintain their access to global markets, as the Chinese capital outflow controls persist, companies that lack previous overseas exposure and whose core business is not property will continue to find it difficult to obtain foreign exchange clearance from the authorities.
Firms with Hong Kong or Singapore listings or subsidiaries will continue to raise funds as well as launch their bids from these financial hubs. Despite this, we may see transaction volumes from China reducing in some markets in the short term. Any reduction may well prove to be temporary as we expect that the capital controls will be loosened as the Yuan exchange rate improves and GDP growth continues on a steadier path.
Indeed, there are signs of this happening already: it was reported in April that the required balancing of inflows and outflows of cross-border Renminbi payments by financial institutions has been verbally lifted. The government policy conference later in the year will also reaffirm the country’s global expansion strategies.
The key markets that Chinese investors are focussing on are gateway cities such as London, New York and the other Super Cities given their stability and depth. Other key locations including cities on the “Belt and Road” route, e.g. Singapore and key Southeast Asian hubs, will also continue to attract significant investor interest.
Sitting in London it looks as if it is going to be a busy time ahead for real estate and the circling Asian capital trying to find a home.
1. The Knight Frank Super Cities are Los Angeles, New York, London, Paris, Berlin, Shanghai, Hong Kong, Tokyo, Singapore, Sydney