China investment remains strong despite global slowdown
The flow of Chinese capital into Australia may have fallen by 11 per cent last year, but investment in real estate remains strong, finds a new report, Demystifying Chinese Investment in Australia.
The report, developed by KPMG and the University of Sydney with data and analysis on commercial real estate transactions from JLL, finds Chinese outbound direct investment, or ODI, declined from $15.4 billion in 2016 to $13.3 billion in 2017.
“2017 was an important and testing year in many ways for Chinese direct investment in Australia,” says Doug Ferguson, KPMG Australia’s head of Asian and international markets and the report’s co-author.
He says Chinese government regulations, implemented to address concerns about “speculative, irrational global investments and massive capital outflows”, together with recent changes to taxes and Australia’s foreign investment regulations, have delivered a year of decline.
“The numbers don’t lie: Chinese ODI in Australia has fallen.”
Ferguson says Australia remains globally competitive, with US$100 billion in Chinese investment since 2008. This is behind only the United States, but the gap is growing.
“Chinese executives tell us that Australia remains a relatively safer and more attractive country to invest than many others, but only 35 per cent of survey respondents feel welcome to invest here, which is down from 52 per cent in 2014,” Ferguson explains.
Chinese investors are drawn to projects in Australia that respond to growing consumer demand and government priority initiatives – health and wellbeing, tourism and lifestyle, real estate, technology, services and mining commodity resources. These are all areas where Australia is internationally competitive.
While mining topped the table for Chinese investment in 2017, with 35 per cent of total direct investment, real estate followed closely behind with 33 per cent.
Australia attracted 11.5 per cent of China’s total global overseas real estate investment, or $4.4 billion. Residential transactions accounted for around 44 per cent of the total value, followed by office (30%) and mixed-use (9%).
With 62 deals conducted over the course of the year, the volume was on par with previous years. However, average deal sizes fell, with three quarters below the $100 million mark.
Michael Zhang, head of JLL’s China desk in Australia, says investors are increasingly on the hunt for “higher quality investment assets and well-located sites with less planning risk”.
“There has also been a partial shift away from trophy assets and increased diversification into alternative asset classes such as education, medical, data centres and renewable energy,” Zhang adds, with 63 per cent of investment activity concentrated in the $5 million to $49 million price bracket.
Zhang says this can be partly attributed to restrictions placed on capital outflow from China.
The report paints an optimistic outlook for investment Down Under, with Ferguson adding that Australia “stands to make sustained economic, social and diplomatic gains by nurturing long-term partnerships between Australian companies and Chinese investors”.