Last week, the Chinese government issued new guidelines to restrict, and in some cases ban, Chinese companies from engaging overseas in certain sectors, including real estate.
The National Development and Reform Commission, China’s state planning agency, listed three categories of overseas investment:
- those that are banned (including gambling),
- those that are restricted (including property, film, and sports), and
- those being encouraged (including mining, technology, and investments that support China’s global Belt & Road infrastructure initiative).
The new measures come after Beijing began clamping down on overseas investment at the end of 2016 in an attempt to support the Chinese yuan and restrict capital outflows.
The tightened restrictions are ringing alarm bells in Australia, where the latest Foreign Investment Review Board annual report shows China invested $473 billion in the economy last year, including $31.9 million in real estate, mostly in residential development.
A Knight Frank market insight claims that 38 per cent of residential development sites in Australia were purchased by Chinese companies last year.
But CBRE says there is already a significant volume of Chinese capital circulating outside the country.
What does it mean for Australian real estate?
The controls could slow Chinese investment in Australia for those concerned about an exit route and possible difficulties in repatriating their capital abroad, warns CBRE.
The new rules are likely to change the ways that Chinese investors seek opportunities abroad, says CBRE. Chinese investors might now be more likely to:
- use offshore platforms to engage in property acquisitions for those that already have money outside China,
- use Hong Kong-based entities to buy assets,
- export operator and management skills,
- invest in Belt & Road countries,
- buy smaller equity stakes below the US$50 million threshold, and
- participate in joint ventures.
Local developer TWT, which started up in Australia many years ago with Chinese capital, told The Australian Financial Review that developers that have been in Australia for some time won’t be significantly affected.
Chief executive Gavin Zhang said, “Local developers like us, who have been in Australia for quite a while won’t be affected.”
But he warned that Chinese developers that have only recently invested in Australia will face difficulties.
“Those mainlanders who just got here, particularly bigger more visible ones will feel pressure. It’s a very serious situation,” he told The Australian Financial Review.
China still accounts for the largest source of capital in the Asia Pacific region and will continue to play a critical role in the global commercial real estate market, says CBRE, though the pace of spending is likely to slow as investors adjust to the new regulations.
SOURCE: The Real Estate Conversation
POSTED: August 23, 2017
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