Outbound Real Estate Investment Volume Slumped to Lowest First Half Level Since 2015

  • Mainland Chinese Real Estate Investment Oversea, hereafter referred to as “MCREIO” continued to trend downwards with just US$4.3 billion being deployed.
  • MCREIO into the U.S. continued to trend at exceptionally low levels, down again from Q1 to total just US$81 million.
  • Tightening lending environment have a severe impact on the domestic real estate developers which led to a sharp decrease in overseas development site acquisitions this quarter.

 

HONG KONG, CHINA – Media OutReach – 1 August 2018 – In Q2, Mainland Chinese Real Estate Investment Overseas, hereafter referred to as “MCREIO”, continued to trend downwards with just US$4.3 billion being deployed, according to the latest China Outbound Investment report released by Cushman & Wakefield.

 

Increased government scrutiny that took effect on 1 March 2018 (New Measures for the Administration of Outbound Investment (Regulation No.11)) was not seen this time to be the main culprit of declining volume. In fact, tightened controls on lending (following the Guidance on Regulating Financial Institutions and Asset Management Business) had a more significant impact in Q2.

 

Surprisingly, in Q2 the office sector staged a comeback in comparison to Q1 with US$3.6 billion of investment recorded, up 44% q-o-q. Over the remainder of the year, we expect limited Mainland Chinese investment activity in the office sector unless acquisitions are being made for self-use or offshore capital is being recycled. As expected, Q2 development activity took a sharp dive given tightened liquidity. Just US$91 million was deployed in Q2, down 98% y-o-y. We forecast this to return in the mid term assuming the mainland Chinese real estate lending environment improves.

 

Hong Kong again took pole position, maintaining its leading streak for the fourth quarter in a row and accounting for almost 80% of global MCREIO investment in Q2. The office sector remained by far the most favored commercial asset class, accounting for 88% of investment into the city. Due to a lack of en-bloc investment opportunities in core areas, the focus shifted to quality assets in decentralized areas PRC developers also shifted their focus from public land sales tender of development sites to acquiring blocks of residential units for future redevelopment purposes.

 

The report shows that MCREIO into the USA decelerated further to just US$81 million in Q2 as one office and one residential deal traded. Nevertheless, we view current impediments to greater investment as transient and maintain an optimistic view for MCREIO investment in the USA over the long term.

 

Following the tightened controls on real estate funding, we have revised our forecast downwards to reflect an anticipated drop of MCREIO investment volume in 2018 vs 2017 by around 40% to 50%.

    

Jason Zhang, Head of China Outbound Investment & Advisory Services, Cushman & Wakefield,  said: “‘Things may get worse before they get better.’  Domestic pressure will force developers to be more cautions and selective when investing overseas, while geopolitical issues will negatively impact investment, mainly into the US market for the remainder of the year.”

 

James Shepherd, Managing Director of Greater China Research, Cushman & Wakefield, said: “Although updates to the National Development and Reform Commission (NDRC) website suggest that the Chinese Government might be easing outbound policy controls (companies are now permitted to invest overseas as long as they are recycling capital from an existing property investment or where funding is raised from non-Chinese banks), we do not expect such updates will significant impact the relatively low outbound investment activities compared to the previous years.”

Click HERE to view the full report.            

 

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