It’s been a year since China surprised the world by allowing greater flexibility in the renminbi exchange rate, resulting in its drop in value by a record 1.9 percent against the US dollar.
Despite widespread concerns over the country’s economy, and its effects for any future investment opportunities, the move has proved beneficial to the global real estate industry, intensifying the appetite among mainland investors to acquire overseas properties, as well as stoking interest among Chinese insurance and other financial companies in holding real estate assets instead of cash.
Since the renminbi shake-up last year, mainland investors have accelerated their acquisitions of property assets in both Hong Kong and further afield in the United States, where the value of real estate is tied to an appreciating U.S. dollar. Over the past nine months, Hong Kong developer Wheelock and Co successfully sold both towers of its One Harbourgate complex in Kowloon to mainland investors, with insurance giant China Life acquiring the west tower for HK$5.86 billion in November, while Shenzhen billionaire Chen Hongtian’s Cheung Kei Holdings picked up the eastern tower for HK$4.5 billion.
“In the last year, Chinese companies have invested more than RMB 28 billion into Hong Kong properties,” noted Oscar Chan, from JLL’s China Capital Markets team. “This hunger for Hong Kong real estate shows not only the growing international footprint of many mainland companies, but also the growing recognition of the value of holding properties valued in different currencies.”
New York has also been a major target for Chinese investors, with sovereign wealth fund CIC investing US$700 million into New York Plaza in Manhattan in May, and China Life partnering with U.S. developer RXR to buy a New York office tower for US$1.65 billion that same month.
“As Chinese investors become more experienced in cross-border deals, Chinese institutions have played a part in some of this year’s largest transactions in the world’s biggest real estate market,” said Darren Xia, Head of JLL’s International Capital Group for China. “Buying foreign currency-denominated assets helps China’s biggest investors to diversify their portfolios,” he added.
“Besides acquiring overseas assets, China’s institutional investors have also been shopping for more real estate domestically, as property values continue to climb in the mainland’s key commercial hubs,” said Johnny Shao, Head of Capital Markets in East China for JLL.
Developer SOHO China last month sold SOHO Century Plaza in Shanghai’s Pudong district to Guohua Life Insurance for RMB 3.2 billion, just five years after acquiring the project in the Zhuyuan area for RMB 1.89 billion.
Premium revenue for China’s insurance industry nearly doubled over the last five years, according to JLL data, rising to RMB 2.4 trillion in 2015, from just RMB 1.3 trillion in 2010.
With some analysts anticipating that the People’s Bank of China may allow the renminbi to depreciate as much as a further three percent this year, insurers and other institutional investors have been turning to real estate as a steady source of investment return and source of capital flows for their burgeoning war chests.
For developers such as SOHO, this growing stack of funds looking for an investment return is an encouraging sign, as the Beijing-based developer announced this week that it hopes to sell three more of its properties in Shanghai, as the city’s climbing leasing rates and growing service sector continue to attract investors.