Western real estate markets: The new horizon for Chinese investors

Chinese investors have an impetuous attraction for western real estate markets. They offer tempting opportunities to individuals, institutions and Chinese companies alike, who seek strategic alternatives to diversify their investments abroad.

Last year, Chinese institutions invested a total of $15 billion in properties abroad -compared to the $600 million in 2009– according to a recent report published by the consultancy firm Knight Frank. Investors are eager to earn better and sustainable, long-term returns. Such goals cannot be guaranteed in China’s slowing economy, but are seen as more attainable in the more stable and reliable western real estate markets.

Neil Brookes, Head of Capital Markets for Asia Pacific at Knight Frank said in an official  statement that Australia, the US and the UK are the most attractive markets to these investors:

“We saw five times as much capital outflow from China into these three markets in 2013 alone compared to the previous year. We expect the transaction volumes from Chinese investors into these three markets this year will match or even exceed that of last year.”

In mid-February, the largest private equity fund in China, China Minsheng Investment, celebrated its 6 month anniversary by announcing its participation as a major investor in the development of a new financial centre  of 14 hectares in London. Minsheng will contribute with $1.5 billion to the building of 400,000 square meters of offices.

Another project is being developed by the Chinese real estate agent Advanced Business Park (ABP). “After the project is completed, it will be the international platform and foundation for Chinese companies and capital to enter the European market,”  Reuters quoted Minsheng Li Huaizhen as saying, an official who was briefing the press on the project.

The Dalian Wanda Group, one of China’s largest conglomerates, led by tycoon Wang Jianling, last year completed the purchase of the landmark Edificio España, in the Spanish capital Madrid, a building formerly owned by Banco Santander. Wang has high aspirations for the future development of this former office complex: his company will invest €100 million to build a five floor shopping centre of 15,000 square metres; a 20,000 square metre hotel; and 300 apartments. There is speculation that Wang is also interested in acquiring another property located in the southwest of the city, and intends to build an entertainment and housing complex.

The Dalian Wanda Group has similar projects in Australia. In addition to investment in an ambitious leisure and resort project in Queensland, Wang will also invest $1 billion, 85,000 square metre mega complex in Sydney’s financial centre.

Australia has long been one of the most attractive destinations for Chinese investors to acquire properties, but excessive inflow of foreign capital in its real estate market has led Canberra to impose new restrictive taxes to limit the purchase of properties by foreigners. The governments of the Asian cities of Singapore and Hong Kong recently took similar measures to curb escalating speculation, primarily motivated by the uncontrolled purchase of properties by the Chinese. The restrictions in these markets has also contributed to the diversification in investments elswhere.

The new Chinese investor is particularly attracted to Europe and the additional perks that certain countries like Spain and Portugal are able to provide. Programmes for obtaining residence permits for foreign investors have proved particularly attractive. European cities offer a quality of life which differs heavily from the heavily polluted Chinese metropolis,  not to mention greater social benefits and educational opportunities, which are inaccessible in China.

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