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Real Estate Investment
Real Estate Association of GuanDong Province
When it comes to investing overseas, Chinese property hunters often head for global neighbours Australia, where they have spent more than $24bn in the last seven years.
Whilst Chinese capital is pouring in to the residential property market, a significant proportion of investment is directed at Australia's commercial sector – shops, offices, hotels, shopping centres and residential development sites.
According to the Real Estate Association of GuanDong Province, the main reason behind Chinese preference for Aussie real estate is the opportunity to realise superior capital growth together with their inherent risk-aversion.
In China, land belongs to the State with all properties lease-held, having a term of 70 years. Leases are obtained via a land grant between the land user and the government-run land administration department.
On expiry of the lease, there is no certainty about what will happen to the land as it is dependent upon the sitting government's policies at the time. Often, when leases expire there are two scenarios: land grants are renewed but at inflated rates or the land is returned to the state with no compensation to the land user.
With either scenario there is a high level of underlying risk. Not having control once the lease expires creates huge doubt surrounding investment performance over the remaining term, particularly if investors wish to bequeath assets to their children.
Sydney's business district has seen a huge influx of Chinese companies in recent years
Another reason why Chinese investors look to Australia is because China's own commercial sector yields minimal returns, particularly in large cities like Shanghai, Beijing and Canton which have huge populations and rapidly rising prices.
Some areas in Shanghai and Beijing are more expensive than in Sydney, with retail property returning as low as a 3% yield.
In terms of smaller cities in China with lower populations, property markets face oversupply issues, with a scarcity of tenants eating into potential investment returns.
For these reasons, many wealthy Chinese investors view Australia as an extremely attractive prospect, with tempting yields and capital growth values way above those available in their own property markets.
In contrast to China, most commercial properties in Australia are freehold which means buyers have an indefinite term of ownership, enabling investors to take a view over the long-term for several generations to come.
The last few years has seen a huge increase of Chinese businesses opening in Australia as confidence in its investment market and business climate has grown. Now there are Chinese mortgage brokers, migration/educational agents, accounting firms and small law firms in numerous office spaces across Australia.
Western Australia, the heart of the mining industry has strong appeal for Chinese investors
From a Chinese investor's perspective, Australia is a country where successful residential and commercial investments can be made – and held for the long-term.
Buyer preferences are for free-standing buildings with the potential of redevelopment. Chinese buyers are also less concerned with rental earnings on their investments, preferring to bank on capital growth.
For this reason, a Chinese investor is more likely to size up a real estate investment prospect for its capital growth potential rather than income generation.
Australian markets deliver a double-whammy to Chinese investors with enormous rental yield potential and significant capital growth. Combined with a relatively minimal risk environment, it's no surprise Chinese investors are drawn like magnets to the benefits of Australian real estate.
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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.