Australia now top market for Chinese investment

Australia has become China’s top destination for commercial real estate investment, but the coronavirus pandemic has resulted in the total value of offshore investment plunging by half.

Data from Juwai IQI showed Australia had supplanted the United States as China’s top commercial property investment destination, as overall Chinese cross-border buying enquiries fell by 27 per cent in the three months to the end of June.

Juwai IQI executive chairman Georg Chmiel said it was remarkable that Australia had moved past the US as China’s preferred investment destination, given the relative small size of the country’s commercial property market.  

“The preference for Australian assets reveals that country’s strong outlook for yields and capital returns, it’s close economic ties to Chinese industry, and its long-term outlook for economic and population growth,” Mr Chmiel said.

Overall, Chinese cross-border commercial property investment has been declining since 2016, with the COVID-19 crisis creating an uncertain investment climate.

“Global economic growth is negative and travel and due diligence is more difficult than in the past,” Mr Chmiel said.

“Many investors believe that if they hold onto their capital they will be able to make cross-border investments on better terms later this year or in 2021.

“We are only just starting to understand how much damage has been done to balance sheets and how far property values have fallen as a result of the COVID-19 pandemic.

“As more information becomes available, investors expect distressed assets to come onto the market, including A-grade property that can be repositioned with excellent long-term prospects.

“We see both buyers and sellers postponing deals until the trends become clearer.”

At the same time, recent research by Real Capital Analytics showed the $7.6 billion worth of foreign commercial property investments in Australia was down by 40 per cent in the first six months of 2020, as compared to the same period last year.

Among the top purchasers of those that did transact were European financial services giants Allianz and AXA Group, UK-headquartered student housing provider Scape Student Living and Singaporean real estate conglomerate GIC. 

Real Capital’s Asia-Pacific Capital Trends report showed the biggest value transaction was Scape’s acquisition of M3 Capital Partners’ portfolio of student accommodation facilities, which was sold for $US1.3 billion in a deal brokered by Savills Australia.

For a single property, the GIC-Dexus joint venture’s acquisition of Melbourne’s Rialto Towers was Australia’s highest value deal at $432.8 million, ranking as the 16th-highest value deal in Asia-Pacific. 

Sydney attracted the lion’s share of investment at $3.2 billion, but that was down 50 per cent on 2019.

Investment in Melbourne fell similarly, plunging 47 per cent to $1.72 billion in the first six months of 2020.

“Australia’s slow start to the year continued into the second quarter,” the report said.

“The lockdowns in New South Wales and Victoria have hit commercial landlords doubly hard.

“Office and non-grocery retail rentals have dried up with non-essential businesses not allowed to operate, while a moratorium on eviction of financially-distressed commercial tenants has hampered their ability to repurpose their properties.

“This might explain why only logistics and student housing properties have mainly been trading of late.”