Mainland Chinese investment outflows into international real estate continued strongly during 2016 with approximately US$31 billion invested offshore, a significant increase on 2015 levels. The USA attracted 33% of these capital outflows as buyers sought trophy assets before the anticipated US dollar appreciation takes hold. Australia accounted for 14% of 2016 investment, a slightly lower proportion than the previous two years of 21% and 19%. The UK fell to 6% from 9% in 2015 as there was increased investment closer to home with Hong Kong investment allocation increasing to 22% from 6% in 2015 and the allocation to Malaysia doubling to 6%.
Chinese investment into Australian real estate (excluding residential dwellings) was $5.55 billion in 2016, down marginally from 2015. The focus of investment changed over the past year with major office investments, particularly in the gateway cities of Sydney and Melbourne, becoming more difficult to secure. This resulted in the investment allocation for office to fall from 47% in 2015 to 24% in 2016, with major investments in Perth ($198m) and Sydney (including 140 Sussex St $130m).
Over the same period Chinese investment in residential development sites increased further, accounting for 51% of investment during 2016 as Australia becomes further entrenched as a destination for Chinese developers. Branching out from inner city high rise developments to encompass major medium density and greenfield developments, the average potential yield for Australian sites purchased by Chinese developers in 2016 was 502 dwellings, as opposed to only 103 dwellings per development site acquired in 2012.
With 2017 announced as the China-Australia Year of Tourism the already strong inflows of Chinese tourists will further accelerate. Tourism Research Australia indicates that mainland Chinese visitor numbers were 1.1 million in the year to September 2016, an increase of 22% p.a, resulting in spending of $9.1 billion, up by 18%. Although second only to New Zealand in terms of total tourist numbers, Chinese visitors have by far the greatest expenditure levels with the USA and UK, both with $3.7 billion, providing the next most significant expenditure levels.
“For many years now our Asian Markets team has been servicing the increasingly knowledgeable and sophisticated Chinese inbound investors and developers. They are now quite well entrenched with strong consultant networks and solid understanding of our regulatory environment and Australian markets. We’re seeing confident Chinese developers with a strong interest in mixed-use, residential development sites, hotels and retail in addition to commercial investments in CBD locations.”
Senior Director, Head of Asian Markets, Knight Frank
Chinese developers and investors purchased a total $2.4 billion worth of Australian residential development sites in 2016; 38% of total sales.
Residential development sites purchased by Chinese developers and investors, had an average area of 21,045 sq m in 2016; increasing more than 18 times from 2012.
In 2016, Australian development sites purchased by Chinese developers and investors averaged a potential 502 dwellings per development site.
As the tourism interest has grown with Australia seen as a highly aspirational destination, so has interest in investment within both direct tourism assets and the retail sector. Chinese investors acquired some $1.7 billion of hotel assets over the past two years, with expectations that this level of investment will continue to accelerate over the coming year. Greaton’s major acquisition of the $700 million W Hotel & Ribbon Residences development in Sydney is an example of this significant investment. Equally greater penetration of retail spending in Australia (it is estimated that Chinese visitors spent some $1.1 billion on items to take home in the 12 months to September 2016) has also been reflected in Chinese investment in retail assets of $550 million in the past two years.
While Australia is undoubtedly a desirable holiday location for Chinese tourists, visitor number are also boosted by stays for educational purposes accounting for $4.1 billion in annual expenditure. Visitors accessing education is also a large factor in the long average stay of Chinese visitors at 39.5 days. Visitors for the purpose of education are not only an important sector of the tourism and education markets plus the wider economy, they also have an extended time to experience Australia and become familiar with a number of locations and business opportunities, which is a known driver of future investment and economic activity.
With trophy office assets remaining tightly held across the major Australian cities we expect to see further broadening of Chinese investment into tourist infrastructure and retail assets over the course of 2017. Residential and mixed use development sites will also remain highly sought with further penetration into the house and land market expected.