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China’s outbound investments escalate

SINGAPORE: China’s outbound investments in commercial property totalled US$33.7 billion (RM112.5 billion) from 2008 to June 2014, according to Cushman & Wakefield’s investment report in October.

“A variety of fundamental forces are driving China’s [increasing] outbound investment trends today,” said Mark Suchy, Cushman & Wakefield China’s director of investment and capital markets.

“Domestic restrictions and cooling market conditions in the Chinese real estate sector are pushing many investors to diversify to developed countries, where signs of economic recovery and the prospect of asset appreciation promise more attractive returns. Positive Chinese policy reform, the strengthening of the renminbi, and the [goal] of Chinese firms to internationalise are further fuelling these capital outflows.”

Office buildings appear to be the preferred property investment among Chinese investors, accounting for 48% of total aggregate investments to date. Office investments saw a spike in 2013, reaching US$8.4 billion. To date, office investments lead the way with US$2.8 billion, followed by development sites (US$2.7 billion).

The investors include large private developers, state-owned banks and insurance firms, sovereign wealth funds and high net worth individuals.

 “Chinese investors prefer mature markets in Asia, North America and Europe. The United States is the top destination, followed by the United Kingdom, Hong Kong, Singapore, Australia, Malaysia, Japan and Brazil,” said Ted Li, Cushman & Wakefield China’s national director of capital markets. “Southeast Asia is a favourite location as well, due to its proximity to China and the strong presence of ethnic Chinese communities. In Singapore, the Chinese prefer to invest in offices, while in Malaysia, land development is the preferred vehicle. Many Chinese developers view the Iskandar Malaysia development zone as having a huge potential for growth, given its close proximity to Singapore.”

Also in this period, the US received a total investment of US$9.72 billion, followed by the UK at US$5.8 billion. The UK tops the list for Chinese real estate investors in Europe, with London alone accounting 62.7% of the total European investment.

In the aftermath of the global financial crisis, European Union leaders looked abroad for foreign direct investments to create job opportunities and stimulate economic recovery. Over recent years, the European real estate sector emerged as a popular target for Chinese investors.

Globally, the two major investment models for Chinese buyers are greenfield investments, and mergers and acquisitions. Chinese developers often forge partnerships with international firms and institutions to reduce investment risks and gain access to a wider range of financing channels.

Cushman & Wakefield believes that Chinese outbound investments will continue to grow as China’s wealthy individuals and capital-rich firms further diversify and expand their global presence.

 

This article first appeared in The Edge Financial Daily, on November 7, 2014.

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