Chinese investors shifting focus in global realty purchases

Photo shows the Gold Fields House in Sydney. Australian private equity group Blackstone has sold a piece of real estate overlooking the landmark Sydney Harbour Bridge and the Sydney Opera House for A$ 415 million ($327 million) to Chinese property giant Dalian Wanda Group.[Photo/Gold Fields House website]

Chinese investors have been moving from core office and residential developments into leisure and industrial assets when they seek opportunities in overseas realty markets, a study said.

Knight Frank, a realty services provider, said a number of recent investment hot spots have shown a discount in prime residential prices compared with key Chinese gateway cities such as Beijing and Shanghai.

"In Los Angeles and Miami, prime apartment prices are both about 25 percent lower than Shanghai, drawing significant interest from high net worth individuals in China," said Dominic Ong, senior director of Asian markets at Knight Frank Australia.

In terms of the attractiveness of investment, using the benchmarks of prime office yields and the spread over the 10-year bond yield, non-core cities such as Frankfurt in Germany, Houston in the United States and Brisbane in Australia may rank higher than the hot spots such as London and New York, according to Knight Frank data.

"Many provincial capitals and key cities in Australia, the United States and the United Kingdom have now presented a better yield spread, which is the gap between the yield return from property investment over bond returns, than the gateway cities of London, New York, Sydney and Melbourne," said David Ji, director and head of research for China at Knight Frank.

The desire to diversify risk into various markets, build brand internationally and help manage future occupation costs are also pushing institutional investors to increase outward real estate investment, the report said.

Chinese outward real estate investment skyrocketed from $600 million in 2009 to about $15 billion last year, Knight Frank said. So far, this investment has been focused in gateway cities in Australia, the US and the UK, the report said.

In 2014, Australia recorded the strongest growth in inbound real estate investment from China, with a rise of more than 60 percent year-on-year.

Market observers said that Chinese investors, whether they are institutions such as banks and insurance firms or super-rich individuals, have been diversifying in many locations. Small and medium-sized State-owned developers and private developers are also expanding overseas and look into more diversified local markets.

Chinese investors are shifting toward sustainable long-term returns and taking more factors into consideration than just price appreciation, market analysts said.