Chinese investors push commercial property investment higher

CommercialFriday 29 July 2016

Buyers from China are increasingly making their presence felt in the Australian commercial property landscape, and it doesn’t appear there will be a slowdown any time soon.

Figures published in a recent report on show that foreign buyers, of which a significant proportion are Chinese, accounted for almost 40% of the $29 billion in purchases of office, industrial and retail property over $2 million last year.

According to CoreLogic, China actually became the biggest overseas investor in Australian commercial property in July 2015, when the Chinese Government-owned Chinese Investment Corporation (CIC) bought nine office blocks in Sydney for $2.45 billion.

The CIC manages $200 billion worth of assets, all under the control of the government, which looks for commercial property investment in countries like Australia that have a stable political and financial climate.

Chinese buyers paying over the odds for property

The Chinese also have a reputation for paying premium prices for investment property in Australia’s commercial sector, reports.

The China-Australia Free Trade Agreement (ChAFTA), which came into effect in December 2015, is designed to boost this trend even more, through the removal of approvals for certain property investments.

ChAFTA has put the Chinese on the same economic footing with Australia as New Zealand and the US, and is a major factor in Chinese investment here.

Why Australia is popular amongst Chinese property investors

According to the Real Estate Institute of NSW, Australia is attractive to the Chinese because real estate investment in China is tightly controlled by the state. Commercial properties can only be leased from the government, not bought freehold, with the lease renewed after a fixed term – or not, depending on the wishes of political leaders.

Another reason Australia is so attractive to Chinese investors is the dismal return on commercial property rentals in China. Shanghai has some of the most expensive commercial properties in the world, yet the rental return can be as low as 3%. Contrast this with Australia’s 8 to 12% per annum return, and it’s easy to see why Australia is a popular market for investors.

Slowdown in the Chinese economy sparks overseas investment

The Chinese economy’s slowdown has seen an increase in overseas investment as the government strives to counter its weakened position in the balance of trade. According to a CNBC report, outbound investment from China has outstripped incoming foreign investment. The Chinese Government is encouraging local companies to invest overseas as a way of bringing much-needed foreign currency into the country.

Expert management is key – regardless of investor nationality

But no matter the investor’s country of origin, property consultants remain key to any successful commercial investment. A property management company can draw on a supply of carefully screened, trustworthy lessees to maintain an ongoing income stream. It will be aware of the regulations governing commercial property leasing, and make sure the investor gets a competitive rental return – whether they are based in Shanghai or Sydney.