Signs are emerging that the capital inflow from mainland China into the Australian property market is slowing down. However, this decline is being offset by investment from other countries and territories into Australian property, analysts say.
According to Cushman & Wakefield, despite lower Chinese investment, commercial real estate in Australia is on track to achieve another robust year, with the firm’s research forecasting total investment of approximately $30bn for 2017.
This follows China’s State Council issuing the first rules on overseas investment by Chinese companies on August 18. A new list of “banned investments” includes casinos and defence technology, while overseas property development and hotels were classified as “restricted”.
China’s National Development and Reform Commission (NDRC) said that companies investing overseas in real estate could be harming China’s financial stability by increasing capital outflows.
James Quigley, head of capital markets, Australia and New Zealand, at Cushman & Wakefield, said that in the first half of this year, the largest source of foreign capital for Australian commercial real estate was Singaporean investors. Meanwhile, Hong Kong investors were responsible for recent landmark deals in London and Australia.
“Despite the decline in investment from mainland Chinese, Australian property investment volumes are on track for another robust year supported by investors from Singapore, Hong Kong, the US and Germany as well as local institutions such as Dexus and Charter Hall,” Quigley said.
John Sears, national director of research at Cushman & Wakefield, said some of the many reasons behind the decline in Chinese investment include limited available assets, uneven investments in 2016, and changing regulation related to Chinese outbound investment.
“Areas which experienced the largest drop in Chinese investment volumes half-on-half were development sites and hotels, down 85 per cent and 67 per cent respectively,” he said. “Investment in retail rose from a low base, just $8.2 million in the first half of 2016 with the largest transaction in 2017 being the Arena Shopping Centre, $36.6 million, in Victoria.”
While there were concerns over the potential impact of a further decline in Chinese investment in Australian commercial property, “overall volumes are expected to remain firm and demand for Australian commercial real estate remain robust, supported by inquiry from a variety of global sources, including Singapore and Hong Kong,” Sears said.
Sears also pointed out that the Chinese government has not banned overseas real estate and hotel investments outright. The latest restrictions could also stimulate other sectors.
“For example, logistics could receive increased interest following its inclusion in the ‘encouraged’ investment category. Additionally, research and development centres in business park-type facilities may receive additional capital allocations,” Sears said.
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