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China Overseas Property Investment up 600 Percent

China Overseas Property Investment up 600 Percent


Overseas property investment by Chinese firms increased by 600 percent over the past three years as investors and developers looked for capital security and portfolio diversification outside China.

Chinese firms increased their overseas real estate investment from $900 million in 2010 to $5.6 billion in 2012, according to research from Savills China. The move into foreign property markets began with individual investors looking for residential properties and moved to institutional developers, the firm says. 

"Chinese investors have now moved onto other markets where, although they account for a relatively small portion of buyers, their numbers are rising rapidly," James Macdonald, head of Savills Research, China said in the report.

So far this year investment volumes have continued the upward trend and the firm expects volumes to increase by 20 percent each year over the next decade.   

Over the years, Chinese nationals have turned to foreign countries looking for access to education and healthcare, permanent residency and citizenship, Savills reports. (Several European countries have extended visa programs for property investors.)

Similarly, developers are adopting different investment approaches overseas as a result of a cooling Chinese market, which has increased the risk profile. 

Typically, developers join local partners in gateway cities, with most developments including residential components. Meanwhile, insurance companies starting to invest will turn to established income-producing commercial developments. Chinese sovereign wealth funds are co-investing in logistics portfolios. CBRE recently estimated that China's insurance companies have $14.4 billion to spend on international real estate.

"What is being seen at the moment is the opening salvo or the exploratory foray for what is expected to be a much bigger wave of capital in coming years," Mr. Macdonald said. 

Ping An Insurance was the first Chinese insurance company to invest in overseas property markets with the acquisition of Lloyds Building in London for $392 million. China's sovereign wealth funds currently have assets under management worth $1.2 trillion with CIC and SAFE both ranked in the top five in the world. CIC has purchased large industrial and warehouse portfolios in Brazil, Australia and Japan as well as an equity stake in Songbird Estates, the majority owner of Canary Wharf.

Currently, China's Public Pension Fund and National Social Security Fund are prohibited from investing in property but deregulation could generate large investment into property markets, the firm says. 

The top 10 developers in China, ranked by sales during the first half of 2013, generated $79.5 billion in revenue, selling more than 495 million square feet in the first six months of the year. 

The firm expects fluctuation in capital flow as conditions change, such as the health of overseas markets, market regulations and the development of internal mechanisms.  

"However, as China's importance on the global stage continues to grow and China's involvement in international affairs deepens, so will the expansion of Chinese companies, developers and investors as they continue to evolve," Mr. Macdonald said. 

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