Our Head of International Capital Transactions, Matt Budden recently returned from Shanghai and Hong Kong to visit some of our key investment partners and discuss investor attitudes to Australian real estate.
There is a widespread belief that the Renminbi may devalue in the future. People whose fortunes have greatly increased in China’s booming economy will want to get their money beyond the reach of Chinese regulators. Australia and Sydney in particular, is perceived to be an ideal destination for inbound Chinese investors because of its geographic location, rule of law, relative ease of doing business and a favourable Renminbi-Aussie dollar exchange rate.
Capital inflows to China between 2005 and its record high against the USD in Jan 2014, saw the RMB appreciate by 37%. A reversal of such flows is now occurring as Chinese investors seek to diversify their assets offshore. China’s economy has gradually slowed from more than 9% annual growth to a still respectable 6%. For the central government to maintain strict control of its capital account and domestic interest rates, the PBOC undertook a gradual weakening of the currency. Yield hungry Chinese investors believe that interest rates in developed economies will increase from their historic lows.
Australia is likely to continue to benefit from Chinese investment in large scale property and agricultural enterprises. Australia continues to attract strong FIRB applications. For the third year in a row, China was the largest source of approved real estate investment ahead of the United States, mostly in off-the-plan apartments in Sydney and Melbourne.
The risks to continued Chinese investment in Australia includes:
Our Chinese investment partners are attracted to Australian commercial property and opportunities in the industrial and debt funding sectors. Chinese investment is increasing in the context of growing foreign investment generally in Australian property.
Chinese investors understand commercial property and are attracted to Australia’s freehold property tenure. Potential Australian yields of more than 6% per annum compare favourably to Shanghai and Hong Kong which are densely populated, highly priced and where property yields are low. On a per-square-metre-basis, Sydney and Melbourne appears fairly priced next to property yields of 3%.