China's appetite for overseas property is insatiable

Wanda is one of many Chinese developers marching overseas to gobbling up deals as local markets cool. Already, $40 billion has changed hands in the first half of 2014.

When China’s richest man, Wang Jianlin, came to Australia for a whirlwind visit in June, he was feted by the most senior political figures in the country -- from Prime Minister Tony Abbott, to Trade Minister Andrew Robb and NSW Premier Mike Baird.

Just two months later, his property conglomerate Wanda, which is listed on the Hong Kong Stock Exchange, announced that it would invest $HK12.5 billion, or $A1.7 billion, in the Australian real estate sector, including building a $900 million tourist resort on the Gold Coast.

Wang, one of the most powerful property tycoons in China, is no stranger to mega overseas deals. He made his debut as a global player in 2012 when he snatched up AMC Theatre, the second largest cinema chain in the US for $2.6bn. It was the biggest US acquisition ever by a private Chinese company.

Over a short period of time, Wanda has committed to 80bn yuan, or $A14bn worth of overseas projects including a pledge to splurge between £2bn-3bn to rejuvenate British cities after his meeting with the British Prime Minister David Cameron.

Wanda’s aggressive offshore expansion is one example of Chinese property developers marching overseas. According to Caixin media, Chinese property developers invested in 35 major projects worth over $US37bn, or $A40bn, in the first half of 2014.

“Chinese outbound property investments beyond Asia really took off in 2009, and they reached a record $US9bn in 2013. We believe more Chinese developers will look overseas to support the needs of their clientele,” says Terence Tang, managing director of Capital Markets and Investment Services at Colliers International.

Chinese buyers’ insatiable appetite for overseas property is one of the major driving forces behind the aggressive investment strategy of major developers. Chinese real estate buyers have become a major force to be reckoned with at several major Western countries, such as the US, Canada and Australia.

In the US, cashed-up Chinese are the biggest buyers of high-end luxury real estate in New York and they have outspent their main competitor, the Russian oligarchs. China has replaced Canada as the leading foreign buyer of American properties. According to the National Association of Realtors, Chinese account for 24 per cent of total foreign buying activity, up from 19 per cent.

Australia is also another perennial favourite for Chinese investors. China replaced the US as the largest investor in Australian properties last year. Chinese interest is driving an apartment construction boom in major cities in Australia such as Sydney and Melbourne. Credit Suisse estimates that Chinese buyers are currently purchasing about 12 per cent of new houses in Australia.

Greenland is another major player in the rapid expansion of Chinese property developers abroad, including Australia. The company is building the largest residential tower in Australia at Sydney CBD. The company also announced the largest ever foreign project in Malaysia, which is estimated to be worth about 20bn yuan or $A3.5bn.

Another major force driving Chinese property developers to look abroad for opportunities is the downturn in the domestic market, which has been under pressure recently as the economy cools down, with home sales down 10.5 per cent in the first seven months of the calendar year. Many analysts describe the real estate sector as the largest risk for the country’s economy.

The chief executive of Vanke, the country’s largest developer, said the “golden age” for the industry was over. Many developers, and even second-tier ones, are looking abroad to increase their returns as well as diversify their risks from a slowing domestic market. According to an article posted on the Ministry of Commerce website, analysts estimate that some overseas projects could earn 100 per cent more than their projects in China.

Chinese property developers are driving a new wave of investment abroad, which has increased 230 times since 2008. This new wave will bring with it both opportunities and challenges for host countries like Australia. The new money will bring fresh opportunities for construction, tourism and other related industries.

But at the same time, there is already considerable community disquiet and opposition to further Chinese investment in the real estate sector -- and especially the new projects that are aimed at attracting Chinese buyers.  These new projects may add to the tension in the community.

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