Despite the recent tightening of foreign investment regulations by the Chinese Government, it’s likely to have minimal long-term effects on inbound capital from the country into Australia’s commercial real estate markets.
A large dip in China’s foreign reserves over 2015 and 2016 due to increased foreign investments – from corporates and individuals alike – saw the Chinese Government take action and put a temporary stop on most new outbound foreign investment applications from the end of 2016. It is business as usual for companies with funds (cash or via asset recycling) outside of mainland China who have continued to be active in investments in overseas markets.
According to Michael Zhang, Head of the China Desk at JLL Australia, the Government “had to take action by implementing what I would like to call a “pause – review – resume” process, which is quite a logical one.”
“The Chinese Government wanted to study and understand the overseas investments made by Chinese companies over the last few years, in order to put in place a good framework for future foreign investment activities. In fact, multiple senior Government officials have made public statements that the Government supports sound overseas investments by Chinese corporates in an increasingly integrated world economy,” Zhang said.
While it remains to be seen if the Chinese Government will introduce new rules around foreign investments, interest from Chinese companies into Australia remains strong.
Zhang adds that any new regulations would not have the same effect on all Chinese investment groups. “Companies with solid industry experience that can demonstrate sound investment strategy are likely to be able to continue their overseas investment activities. From a macroeconomic point of view, there is too much money in China and a lack of quality opportunities domestically, so it makes a lot of sense that some of this money is invested wisely in overseas markets.
“Australia is a mature, transparent and well regulated market which naturally allows for making “sound investment decisions” easier. Our assets are generally small in size and value compared to those of the US and the UK so our market is also more accessible to a larger investor pool,” Zhang says.
“They [Chinese investors] have started looking at infrastructure because it’s a sector in which they’re experienced and competent – having built and operated high tech bullet trains, road networks and seaports that move hundreds of millions of people and billion dollars of goods on a daily basis. Naturally, they want to utilise these experiences and skills in infrastructure projects in Australia.”
Additionally, the strong flow of cross-border capital being seen globally bodes well for Australia. In fact, it is estimated that cross-border activity is set to surpass 50 percent of the estimated US$1 trillion investment volumes by 2020.
David Green-Morgan, JLL’s Global Capital Markets Research Director, says, “It’s becoming evident that investors are increasingly just as happy looking for opportunities on the other side of the world as they are in countries closer to them.
“Certainly post financial crisis we have seen a multitude of new institutional capital sources into direct real estate from China, Taiwan, Singapore, Malaysia, Norway, Africa and Latin America,” Green-Morgan said.