Speculation about the future of China’s property market has increased as real estate moguls Li Ka-shing and Wang jianlin have gradually withdrawn from the market and diversified their investments with overseas property.
Over the last twenty years, the two ultra-rich property speculators have been making a killing in Chinese real estate, earning them huge respect among investors. However, even before the recent decline in Chinese property prices, Ka-shing and Jianlin have been gradually withdrawing from China’s market, preferring to diversify their investments with overseas property.
Where corporations and institutions lead, private investment follows
Asia's richest man, Li Ka-shing from Hong Kong has sold off five major property assets in the last 12 months, most recently listing the prestigious Shanghai International Capital Plaza office and retail complex as up for sale with a price tag of €200m.
As Ka-shing has cashed in his capital from Chinese property he has been reinvesting in Spain and England. Earlier in 2014 he launched a project to develop 3,500 apartments in the London borough of Lewisham and has reportedly purchased assets in Europe totalling more than €3bn.
Although not quite as wealthy as Ka-shing, Wang Jianlin is China’s richest man after making his fortune in real estate over the last two decades. He is reported to be worth €11.5bn according to Forbes and has principally been involved in developing shopping malls and movie theatres in China.
Wang Jianlin's €900m five star hotel under construction in London's Nine Elms
Overseas property is the investment asset choice of China’s ‘nouveau riche’
Like Ka-shing, Jianlin is now moving his money out of China, recently making a further investment of €1bn to acquire property in America’s glamorous Beverly Hills.
Property experts in China believe that both Ka-shing and Jianlin’s current preference for overseas assets signals an extended slowdown in the nation’s property market.
In July, Jianlin launched a €700m hotel project in Chicago and has announced that he plans to invest just under €1bn in New York to build hotels.
Chinese investors buying more foreign real estate than ever before
With Chinese households generally getting richer, a growing number of people are following suit and investing their cash in overseas property. In the US, buyers from China and Hong Kong spent €17bn, a massive 72% more than the previous year and interest in European property assets tripled in 2013 with further growth expected this year.
Susheela Rivers, head of Asia-Pacific real estate for global law firm DLA Piper said that Chinese investors are looking for assets in key European cities, "the German cities anyway, Munich and Frankfurt plus Paris, and some Chinese investors are also quite keen on the Milan market. Retail is very strong there so they are familiar with it".
Residency visas for qualifying investments driving European property markets
"Other Chinese are more interested in resort or hospitality property in southern Europe such as Portugal and Spain but they are certainly not restricted to any particular asset class or market", she added, "There is less of a fear of a euro issue or a Eurozone sovereign issue now than there was some time ago."
Jianlin's company Dalian Wanda recently purchased Madrid's iconic Edificio Espana for €265m
The most visible deals so far in Europe are insurer Ping An’s acquisition of the Lloyds building in London for €330m, and China Life’s expected €1bn acquisition of the London Canary Wharf headquarters of law firm Clifford Chance.
Increased Asian confidence in Eurozone recovery
Chinese investors are motivated by diversification and weight of capital. Rivers says: "If you’re talking about a Chinese investor it will be a place to park money; it will be a security for a home elsewhere; it will be a home or investment for their family….so often, it is parking money elsewhere. It’s not lack of confidence but some of this wealth has been obtained quite recently and they are always thinking that the money needs to be parked somewhere secure."
In general, Asian investors have been returning to Europe’s commercial and residential real estate markets in their droves, snapping up trophy assets particularly in London, after staying clear of the EU during the financial crisis.
Chinese investment is now the biggest source of Asian investment in Europe
Buyers from the region, particularly China, accounted for €11.3bn of transactions in the year through to the end of March this year, more than 20 times the value of purchases in the same period five years earlier.
One stand-out trend in 2014 is that mainland China has become a powerful force in European real estate markets and is now the continent’s biggest source of Asian investment.
Chinese investors are losing confidence in the domestic property market
London continues to be a magnet for Asian property investors looking to diversify with prime, income-generating properties with Paris and top-tier German cities such as Frankfurt also enjoying increased Asian investor-interest.
Chinese investment in overseas real estate has grown spectacularly from €700 million in 2010 to €4.3 billion in 2012 with predicted growth of 20% per annum over the next decade.
- Wednesday 27 August 2014