Chinese overseas investment has changed significantly in the past five years, which then has affected the new global wealth order. According to the statistics of Knight Frank's research department, over the past year, the growth of Chinese-funded overseas investment has maintained at 10%-11%, of which Chinese funds have increased, and both investment products and channels have become diversified, such as from residential to commercial, chateau, and logistics real estate.
According to the latest "Wealth Report" released by Knight Frank, commercial real estate is still a very important asset class for private investors, and the scale of individual real estate deals by private investors is getting bigger. In 2012, there were only a few transactions worth more than $1 billion, and the total value of the transaction was only $5 billion. By 2017, the total value of transactions worth more than $1 billion had risen to more than $20 billion. It is worth noting that the types of investors are changing: in the past, only institutional investors or real estate companies were capable of making block trade, and now the active participation of family and private investors has increased year by year.
Ji Yanxun, Director of the Research and Consulting Department of Knight Frank (Greater China), pointed out in an interview with the 21st Century Business Herald that in the past five years, the investments abroad made by the mainland China have jumped to the third place in the world. Although regulations such as “outside limits” released by relevant departments last year may affect the progress of some investments, by the first quarter of this year, mainland funds still have a strong power in overseas real estate investment, achieving an annual growth of 10%-11%.
Private investors accounting for 43%
Knight Frank report shows that the total value of the transactions worth more than USD 500 million rose from USD 21 billion in 2012 to USD 53 billion in 2017, and the transactions worth more than USD 500 million become mainstream. In all real estate transactions worth more than USD 1 billion last year, transactions completed by private investors accounted for 43% of the total value of the transactions.
Asia has become a major source of demand for such large-scale transactions, accounting for two-thirds of the total transaction volume. For example, last year's most eye-catching office building acquisition in Central Hong Kong worth USD 5.1 billion, was completed by private investors in a consortium.
Chinese bulk overseas transactions reached USD 45 billion in 2017, taking the second or third place in the world (the first is Hong Kong). Moreover, the increase in personal capital investment becomes a new trend compared with the proportion of institutions. In the past, personal capital investment was mainly made to luxury houses and chateaux, but it has become more diversified, such as star-rated hotels and logistics real estate.
The global investment by Chinese is surging, which is evident from the number of Asian super-rich people. Although Europe still accounts for 10% of the global average, its mature market is hard to match the infinite vitality of the Asian market, whose growth rate reached 15%. By the end of 2017, the number of super-rich people in Asia was 35,800, compared with 35,100 in Europe.
Ji Yanxun pointed out that with billions of dollars in trading as the boundary, investment targeting at real estate is a secret way for the rich to maintain wealth. Respondents to the Knight Frank survey said that in 2017, the real estate investment made by clients increased by 56%, second only to stock investment with a growth rate of 62%. In fact, the total value of transactions in commercial real estate last year reached USD 840 billion. North America's real estate investment share is 46%, followed by European real estate investment, which accounts for 36%. Asia’s real estate investment share is 17%, ranking the third, with a large gap between the top two. The share of real estate investment in the rest of the world is only 2%.
Diversification of Chinese investment
Anthony Duggan, Head of Capital Markets Research Department of Knight Frank believes that investors' preferred target is to develop a mature, highly liquid, and transparent real estate market. The world's top ten cities attract nearly 30% of the annual total investment transaction volume. For investors who invest in foreign markets for the first time, cities such as London and New York that are transparent and highly liquid are undoubtedly attractive.
Due to the generally low returns of mature markets such as Japan, Hong Kong and Singapore, Asian funds, mainly Chinese funds tend to seek investment opportunities at home and abroad using the risk curve as a reference, and the preferred choice is the commercial real estate in the US and the UK. In cross-border investment, Chinese investors also tend to invest in professional commercial real estates such as medical real, pension and logistics warehousing real estate. The transactions mentioned above exceeding USD 1 billion mainly involve in the sale of office buildings, while the transactions exceeding USD 500 million involve in more diversified types of assets, including shopping centers, hotels and industrial facilities.
William Matthews, a business research partner of Knight Frank believes that bulk transactions are more efficient and can lead to asset management opportunities.
Liam Bailey, Head of Global Research Department of Knight Frank pointed out that the increased liquidity of properties in the UK and the US and the enhancement of real estate hedging inflation are factors that boost investment. However, it should be noted that interest rates in the US, China, Canada and the UK may rise, and the European Central Bank began to reduce its quantitative easing policy. These changes will lead to a tighter monetary policy, but borrowers can still get a fairly low lending rate in 2018.
In addition, Ji Yanxun pointed out that although overseas policies on restricting Chinese investment have also been released, the growth of Chinese investments will remain strong in the next five years.
Source: 21st Century Business Herald
