Outbound deals lift commercial realty

US, UK among top destinations; SE Asia attractive for ethnic ties

Outbound investment in commercial property rose more than 200-fold from 2008 to June 2014, reaching a total of $33.7 billion during the period, a report said on Wednesday.

The United States was the top destination for investment from the Chinese mainland, followed by the United Kingdom, Hong Kong, Singapore, Australia and Malaysia, according to the research by Cushman & Wakefield, the world's largest private commercial real estate services firm.

"Chinese investors prefer developed and mature markets in Asia, North America and Europe," said Ted Li, national director of capital markets, China at Cushman & Wakefield.

Most of China's investments in US property are concentrated in the "gateway cities" in the eastern and western coastal areas as well as the Great Lakes region.

Xinyuan Real Estate Co Ltd, a Nasdaq-listed Chinese property developer, for instance, just opened the sale of its first residential project in New York, with a total investment of $250 million.

"Two-thirds of our apartment will be sold to local customers while the remaining one-third will be for Chinese customers," said John Liang, executive vice-president of Xinyuan Real Estate.

Snapping up high-quality land parcels in New York, according to Liang, will be a major challenge for the company to develop further projects in the city.

Going forward, investors are increasingly diversifying their asset choices and spreading their investments across the US, Li from Cushman & Weikfield said.

The UK is the first choice for Chinese real estate investors in Europe, with London alone accounting for 62.7 percent of the European total.

"Southeast Asia is a favorite destination as well, due to its proximity to China and the strong presence of ethnic Chinese communities," Li said.

"In Singapore, Chinese investors prefer to invest in offices, whereas in Malaysia, land development is the preferred vehicle. Many Chinese developers view the Iskandar Malaysia development zone as having huge potential for growth given its close proximity to Singapore," Li said.

Mark Suchy, director of investment and capital markets, east China, Cushman & Wakefield said New York City, Los Angeles, San Francisco, London and Sydney are the top investment destinations for Chinese outbound investment in the West, while cities like Seattle, Dallas, and Melbourne will become more relevant as Chinese capital increasingly taps these "second-tier" destinations. "We see a variety of fundamental forces driving China's outbound investment trends," said Suchy.

Domestic restrictions on home purchases as well as the cooling property market conditions at home are pushing many investors to diversify to developed countries, where signs of economic recovery and prospects of asset appreciation promise more attractive returns.

"Supportive government policies for enterprises to expand overseas, the strengthening of the renminbi, and the desire of Chinese firms to internationalize are fueling the capital outflows," said Suchy.

Meanwhile, private enterprises and individual investors are the key driving force, with office buildings by far the most preferred property type, the research said.

Cushman & Wakefield's analysis showed that while State-owned enterprises and private firms each contributed around 50 percent of the total value of outbound real estate investment from 2008 to June 2014, private enterprises and individual investors accounted for a larger share of the number of deals.

A variety of investors - including large private developers, State-owned banks and insurance firms, sovereign wealth funds and high-net-worth individuals - are jumping into foreign property markets.

Between 2008 and June 2014, office buildings were by far the most preferred property type, accounting for over 48 percent of aggregate investment. Office investments experienced a spike in 2013, reaching $8.4 billion - greater than the total for all other asset classes of $7.4 billion that year.