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News> Business> Content
Friday, October 19, 2018, 23:33
Mainland investors still seeking overseas investments
By Oswald Chan
Friday, October 19, 2018, 23:33 By Oswald Chan

HONG KONG - Chinese mainland capital control measures may have damped the desires of domestic enterprises for overseas property investments but they are still seeking deals in alternative property markets, global law firm Paul Hastings says.

In August 2017, the State Council and the National Development and Reform Commission categorized overseas real estate and hotels, film and entertainment, as well as sport, as restricted investments. The Chinese authorities took measures to cap its Qualified Domestic Institutional Investor quota in 2016. This restricted how much capital institutional investors can deploy in foreign asset markets, including the real estate sector.

The purpose of the new regulations is to reduce the number of irrational outbound investments and also to improve the development of China’s overseas investments. China has been attempting to crack down on capital flight resulting from a slowing economy and downward pressures on the exchange rate. The latest rules impose yet another level of controls on outbound capital.

Since 2010, Chinese investors have acquired international properties totaling more than $430 billion, according to an annual report from Juwai, an online Chinese real estate portal.

“The combination of increasing enforcement on the restriction of money outflows, as well as some of the uncertainities that have come with China’s tariffs and government intrusion, if they have an issue with a company, have had a little chilling effect on Chinese investment in the US,” said Eric Landau, a partner and chair of real estate department at Paul Hastings.

Dalian Wanda Group in August 2017 backed away from the $605 million acquisition of the Nine Elms Square site in London, after the Chinese government’s new capital control measures were announced.

Landau, however, is still confident the US property market will remain a magnet for Chinese capital.

“There is still investor confidence in the European and United States real estate sector for making transactions. Interest rates are still at historical low levels. We have not seen property prices going down because there is so much potential capital coming from China for investment in the competitive market for seeking assets.”

Chinese residential and commercial international property purchases in 2017 reached a new record of $119.7 billion, up 18.1 percent from the $101.4 billion in 2016, according to statistics posted on the Juwai website.

Juwai expects Chinese commercial and residential property investment to increase 3 percent to 8 percent this year from a year ago, raising global investments from $123.3 billion to $129.3 billion.

Despite frenetic overseas property investments by Chinese companies, there have still been some notable failures.

The Chinese government said in February 2018 that it had seized control of Anbang Insurance Group, the troubled insurer that owns the Waldorf Astoria hotel and other marquee properties around the world. Anbang made headlines in 2014 with its $2 billion purchase of New York’s Waldorf Astoria hotel.

In 2014, the Dalian Wanda Group bought eight acres of the Los Angeles city’s real estate for $420 million. This was with the aim of pushing a luxury hotel and condo development project. However, the land parcel remains vacant after four years. The land has been put up for sale but the bids have come in well below the asking price. This indicates that the Chinese developer may suffer a significant loss after accounting for carrying costs and development expenses.

Landau said: “Chinese corporate investors are looking for alternative places for outbound property investments, going out to Latin America, Africa, Southeast Asia and Belt and Road countries to diversify their real estate asset portfolios.”

Philip Feder, a partner at Paul Hastings, said Japan and other sovereign wealth funds show a strong appetite for US real estate assets along with China.

“Besides Japanese pension funds, sovereign wealth funds from Norway, Middle East, Canada and Korea are also seeking US real estate assets. With a lower cost of capital, Japanese investors are particularly fond of US’s office, hotel and commercial building assets,” added Feder.

oswald@chinadailyhk.com

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