January 22, 2015, Hong Kong – In the last few years, the number of Chinese real estate developers and investors “Going Global” and engaging in overseas real estate investments has surged. According to CBRE’s “The Surge of Asian Capital in the Global Real Estate Market H1 2014” report, the level of cross-border investments by Asian investors continued to rise in the first half of 2014, an increase of 40% from the prior year, with 23% of the active capital coming from China, 25% from Hong Kong, and 29% from Singapore.
Following the challenges manifested by the nation’s macro-economic transformation including a shift in the domestic real estate market, many Chinese real estate enterprises and institutional investors are motivated to seek new investment opportunities. At the same time, asset values of overseas markets have been falling to within a more reasonable range. Internal and external macro-environments have combined to give a strong impetus for Chinese investors “going abroad”.
Kitty Liu, Senior Director, CBRE Global Capital Markets, said “Outbound real estate investment is now a flourishing component of China’s overseas investments and this will remain as a long-term trend. Currently, Chinese investors are mainly focusing their investments in markets such as the UK, US, Australia, Europe and Southeast Asia with property types ranging from residential developments and office buildings to hotels. Participation in outbound real estate development and investment will have a positive and far-reaching impact on the development of China’s real estate companies and institutional investors.”
Overseas investment in the residential sector is mainly undertaken by real estate development companies and RMB real estate private equity funds. There have also been an increasing number of Chinese individuals purchasing overseas residential properties, driven by such major factors as education, immigration, tourism, vacations or asset allocation, reflecting a relatively wide range of interest for residential products. In addition, developers believe that their domestic network and sales channels will continue to aid the sales of their overseas projects.
For development of overseas residential projects, it is suggested that Chinese developers consider collaborating/JV with a high caliber local partner. With the support of a local partner when entering into a new market, potential risks in laws and regulations, planning and design and other factors could be mitigated. This approach could also help to address the challenges faced in areas like project financing.
Office properties are largely favored by institutional investors. Core office assets can bring along stable rental income and achieve a stable return on investment with favorable market liquidity. Additionally, as the economy is currently experiencing an uptrend, that could suggest potentials for core office properties to appreciate in asset value. Yet, the appreciation of asset value also depends on quality asset management; hence post-investment management is an important point to note when investing in office properties including both property and lease management.
This is a sector most attractive to institutional investors and family enterprises. Compared to office buildings, investment in hotel properties managed by internationally renowned hotel companies creates the ability to generate higher brand impact for investors. To name a few hotel acquisitions by Chinese investors worldwide, Park Hyatt Hotel was acquired by Fu Wah International Group in Melbourne; Hilton’s Waldorf-Astoria Hotel was acquired by Anbang Insurance in New York; Sheraton on the Park was acquired by Sunshine Insurance Group in Sydney and Paris Marriott Hotel Champs-Elysees was acquired by Kai Yuan Holdings in Paris. These are high quality, high reputation hotel properties and as a result, greatly enhance the brand awareness, profile and reputation of the underlying Chinese companies who have invested in them. With operations of the hotels typically managed by internationally renowned hotel management companies, investors find post-investment management much easier.
Chinese companies often face challenges revolving around cultural differences, the legal environment and talent pool when investing overseas.
“Along with the growth of China’s outbound investments, it is essential for Chinese investors to understand and learn about the various overseas markets,” Liu commented. “In addition to developing an international team, we would suggest that Chinese investors also work with third-party professional service firms or local partners who are familiar with the dynamics and operations of the local market.”
“Engaging real estate consultants, law firms, tax planners and other professional firms will mitigate potential risks and facilitate the smooth implementation of overseas investment and development projects, helping Chinese investors to get access to international experience and best practice, which will in turn have a positive impact on their long term international business expansion, ” she added.
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
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