Chinese Investment

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<div>Relax everyone. </div>
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<div>I've been to China for a week, and I've got everything sussed.</div>
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<div>Alright, I'm only joshing, there are of those pieces doing the rounds already, and I don't have too many original insights today.</div>
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<div>The trip did give me some food for thought, however, about the future of Australia's largest capital cities.</div>
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<div>In my home country of England, the capital city London has never really embraced high-rise living.</div>
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<div>But as the Asian Century progresses it seems likely that some Australian cities will increasingly do so. </div>
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<div>Here are a five things that we might expect to see more of...</div>
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<strong><span style="text-decoration: underline;">1 - Higher construction costs</span></strong><br><div> </div>
<div>Construction costs - and particularly land remediation costs - have become more expensive in Australia over time.<br><br>I looked here previously at some of the reasons why.  </div>
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<div>Construction techniques and equipment are relatively cheap in China. And it shows (oops-a-daisy!)...</div>
<br><div><strong><span style="text-decoration: underline;">2 - Reclaimed land?</span></strong></div>
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<div>In Hong Kong, over the past two decades about 60 square kilometres of additional land has been created, particularly in prime waterfront sites on Victoria Harbour.</div>
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<div>However, legislation has been passed to protect the harbour from encroaching land into the precious and highly valued harbour space.</div>
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<div>We could see some similar trends playing out in Australia.<br><br>Indeed, land reclamation and remediation on the Hungry Mile was an integral part of Lend Lease's flagship Barangaroo project.<br><br>Overall, though, land reclamation on a large scale would likely be opposed in Australia, I feel. </div>
<br><strong><span style="text-decoration: underline;">3 - Lagged delivery of infrastsructure</span></strong><br><br><div>One of the most noticeable things in China, particularly when you see the mainland, is that when something needs building...it gets built!</div>
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<div>China needs a bridge - a bridge gets built. China requires a highway or an airport - a highway or an airport gets constructed.</div>
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<div>Perhaps this is one of the benefits of living in a surplus country.</div>
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<div>By contrast the delivery of infrastructure in Australia always seems to lag, sometimes horribly so.<br><br>Left to its own devices, the market seems to focus on building residential dwellings, but not enough other infrastructure.</div>
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<div>And when stuff does eventually get built, people still carp and complain.<br><br>Look at the extremely successful Gold Coast Light Rail project, for example, which notched up a rip-snorting 14 million trips in the year to 30 June ahead of the forthcoming Olympic Games. And people are still whingeing about it!<br><br>Australia's 10 year bond yield recently hit its lowest level in history, so it's potentially a great time to borrow and build.<br><br>But we'll have to wait and see what Prime Minister Turnbull thinks about that, and whether the electorate has the appetite for debt.</div>
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<strong><span style="text-decoration: underline;">4 - Extreme inner city land prices</span></strong><br><br><div>With a highly concentrated population, prime location development sites in Hong Kong can now be worth up to an extraordinary HK$5 million per square metre.</div>
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<div>Inner Sydney has seen some breathtaking prices paid by Chinese investors and developers in recent years for development sites, but nothing remotely on this scale.</div>
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<div>Sydney's population is only 5 million today, but that number if projected to double over the course of this century. So, one day...</div>
<br><div><strong><span style="text-decoration: underline;">5 - Higher density living</span></strong></div>
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<div>We tend to think of Australia's capital cities as being 'dense', essentially because they aren't towns, and because employment tends to be centralised and the traffic is therefore often so bad.<br><br>But with the exception of  handful of suburbs, in global terms Australia's urban populations are in fact anything but dense, as soon as you move away from their central cores. </div>
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<br><div>Even in the largest capital cities in Australia there are plenty of sites which can still be developed for residential dwellings. </div>
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<div>And if land supply is short, we can also build up as well as out.</div>
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<div>China has a number of large cities that provide example of how much denser city living can become over time. </div>
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<div>BTW the term MOAR, as written in the headline, is internet slang and a combination of the words more and roar.</div>
<br><p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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Building MOAR high rise: Pete Wargent

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<p>Chinese capital has a huge role to play in Australia's housing market over the next few years, for better or for worse. </p>
<p>But there are some looming obstacles. </p>
<p>New South Wales recently introduced a 4 percent stamp duty surcharge for non-resident buyers, with a 0.75 percent land tax. </p>
<p>Harsh, yes, but not as onerous for apartment buyers as the 7 percent stamp duty surcharge that became effective from 1 July in Victoria, while Queensland has also introduced a 3 percent surcharge. </p>
<p>Meanwhile, banks and brokers fearing investigation have become extremely reluctant to lend to non-resident buyers declaring only foreign income. </p>
<p>With a record volume of apartments due for completion over the next two years, and many of these having been bought off the plan by overseas buyers, one way or another one feels that something has to give. </p>
<p><strong><span style="text-decoration: underline;">Fork...</span></strong></p>
<p>At this juncture it feels like it could go either way.</p>
<p>We know that Australia (and particularly Melbourne and Sydney) is a favourite destination for Chinese capital. </p>
<p>Across the drink, Vancouver recently introduced a monster 15 percent tax on non-residents which has turned Chinese investors away and is pushing that housing market south. </p>
<p>This could in turn lead more Chinese buyers to look at Australia as the destination for their fleeing capital.</p>
<p>Although prices have gotten more expensive in Australia for local buyers, thanks to foreign exchange movements this is not so for the Chinese. </p>
<p>Unit prices may have increased by 41 percent over the last four years in Sydney, for example, but when translated into CNY prices have not moved up at all in real terms. </p>
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<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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Chinese buyers... where to from here? Pete Wargent

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<div>Net permanent and long term migration into Australia seems to be steadying, summimg +266,400 in the year to August, according to the latest ABS Overseas Arrivals and Departures figures. </div>
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<div>The number of permanent settlers per annum appears to be very gradually rising again, with 57.1 per cent of settlers hailing from Asia. </div>
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<div>It feels as though annual population growth in 2016 will be tracking at around +1.3 per cent, or somewhere between +300,000 and +350,000. </div>
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<div>However, the composition of growth has changed very significantly since the peak of the mining investment boom in 2012, with Sydney and Melbourne accounting for a record and ever-greater share of the headcount growth. In aggregate, regional population growth has slowed. </div>
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<div><strong><span style="text-decoration: underline;">Chinese arrivals</span></strong></div>
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<div>More dramatically, total annual short term arrivals increased by a very strong +10.6 per cent over the year to August, to sit at a smidgen under 8 million.</div>
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<div>Outbound trips are still increasing too, but at a far less sprightly pace (in fact the pace of outbound growth is less than half of that of short term arrivals, meaning that a positive rebalancing continues). </div>
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<p>The annual number of Chinese arrivals continues to accelerate at an astonishing pace, increasing by +23.1 per cent over the past year to a new high of 1.18 million. </p>
<div>There are now more annual visitors from China and Hong Kong to Australia than there are from our more proximate neighbour New Zealand. </div>
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<div>While many are short term arrivals <em>bona fide</em> tourists, a total of precisely 500,000 short term arrivals into Australia over the year to August were primarily for the purposes of education.</div>
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<div>Higher education is hugely attractive for international students from Asia, since it comes with the lure of potential permanent residency, obviously a big drawcard. </div>
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<div>Note that there are now more than two years of water under the bridge since the higher education boom really teed off in earnest, meaning that over the next year or two there may is likely to be a very strong uplift in students being granted permanent residency (as indeed is forecast by the DIBP) or sundry visa types.</div>
<p><strong><span style="text-decoration: underline;">The wrap</span></strong></p>
<p>While permanent and long term migration to Australia seems to have levelled out, arguably the more significant trends are taking place beneath the surface. </p>
<div>There is plenty of noise in month-to-month figures, but simply following the trend in the number of monthly visitors from China shows a doubling from less than 50,000 per month in early 2012 to well over 100,000 per month in Q3 2016. </div>
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<div>In terms of the property sector, while it's true that that the incoming wave of Chinese capital most impacts new and off-the-plan properties, there are now so many permanent residents and citizens of Chinese heritage that the impacts have shifted into established property too. </div>
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<em>News</em> draws a tangible link between education arrivals and Chinese property buying activity, notably in inner Sydney suburbs such as Haymarket, Ultimo, Kensington, Surry Hills, Waterloo, and other parts of South Sydney, for example. </div>
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<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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Chinese visitors more than double in 4 years: Pete Wargent

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<p><span>Dexus has sold a half stake in Grosvenor Place to Chinese Investment Corporation for $925 million.</span></p>
<p><span>The ASX listed company secured the biggest single commercial deal of the year to date in the much anticipated deal.</span></p>
<p>Dexus, in partnership with the Canada Pension Plan Investment Board, hopes to pandemic-proof its portfolio.</p>
<p><span>Dexus held 37.5 per cent, with the Canadian group at 12.5 per cent.</span>The stake was sold at a discount of around 5 per cent to its book value, reflecting the impact of the coronavirus crisis.</p>
<p><span>The <span>sale to the <span>sovereign wealth fund </span>through by CBRE and JLL awaits approval by the Foreign Investment Review Board.</span></span></p>
<p class="selectionShareable">The deal was flagged by The Australian in September when CIC edged out rivals in the contest for the interest in the tower, in a sign that international players would back the recovery of Australia’s office markets.</p>
<p class="selectionShareable">The sovereign fund's initial interest in the George Street office tower was bought from the Investa office portfolio in 2015.</p>
<p class="selectionShareable">The tower will be three-quarters owned by CIC.</p>
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Dexus sells Grosvenor Place half share for $925 million to Chinese sovereign wealth fund

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<p>EXPERT OBSERVATION</p>
<p>Last week I travelled around a few cities and caught up with the directors from some of Australia's top Chinese developers and institutional investors.</p>
<p>Here is what I found:</p>
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<li>Together these institutions invested over $1.75 billion AUD in residential development sites in the last FY;</li>
<li>In this FY, another $2.5-$3 billion is expected to be poured in;</li>
<li>Since 2017, most of Australia's Chinese developers are moving away from high density development (e.g. apartments) to low density (house and land in particular);</li>
<li>Institutional investors are looking for high-yield (8% or more) commercial properties occupied by major businesses or government tenants;</li>
<li>Half of Chinese developers in Australia are backed by banks in China (which are mostly state-owned);</li>
<li>None of them wants to be involved in Australian politics or donate anything to any political party;</li>
<li>Most of them prefer land without a permit because of cost and their willingness to be involved in every step of designs;</li>
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<p>What's interesting, is that all of the top Chinese developers and institutional investors believe the property market is already bouncing back.</p>
<p>What caught their attention from GiFang.com is how we handle data - both property data and Chinese user data.</p>
<p>As the world's only Chinese property platform with both website and Android/iOS app that focus 100% on Australian real estate, we can track things like the percentage of Chinese users that looked at the listings, state by state.</p>
<p>By the way, this is what we found in July:</p>
<p><strong>VIC:</strong> 29.4% of our users viewed properties in VIC</p>
<p><strong>NSW:</strong> 27.9%</p>
<p><strong>QLD:</strong> 21.0%</p>
<p><strong>WA:</strong> 9.9% (fastest growing)</p>
<p><strong>SA:</strong> 7.3%</p>
<p><strong>TAS:</strong> 4.5%</p>
<p><strong>ACT:</strong> 0% (no property on GiFang)</p>
<p><strong>NT:</strong> 0% (no property on GiFang)</p>
<p>In total there are over 1.03 million visits in July, about 40% are from AU &amp; NZ.</p>
<p><em>Michael Yang 杨霄羽 is CEO of <a href="http://www.gifang.com" target="_blank">GiFang</a>.</em><em><br></em></p>
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Seven facts about Australia's wealthy Chinese investors: Michael Yang

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<p>GUEST OBSERVATION</p>
<p>Chinese investment in Australia fell 36% in 2018, to A$8.2 billion (US$6.2 billion) from A$13 billion (US$10 billion) in 2017, according to research by KPMG and the University of Sydney Business School.</p>
<p>This is despite Chinese investors still generally regarding Australia as safer and more attractive than most other countries. So 2018 need not be a turning point. But it is cause for reflection.</p>
<p>Discussion about Chinese investment in recent years has been dominated by political and security concerns. These concerns need to be balanced by the national interest in economic prosperity. Chinese investment creates jobs, increases export opportunities and deepens relations with our most significant trade partner.</p>
<p>Arguably the pendulum has to swing back to thinking about the economic benefits. We need a more balanced national conversation.</p>
<p><strong>Many losers, one winner</strong></p>
<p>Our data covers direct investments through mergers and acquisitions, joint ventures and new projects. We do not include portfolio investments, such as buying stocks and bonds, which do not result in foreign management, ownership or legal control. Nor do we include residential property sales.</p>
<p>In the mining, agribusiness and services sectors investment fell by more than 90%. In renewable energy it fell by 48%, and in commercial real estate by 31%.</p>
<p>The only sector where investment did not fall was health care, where investment more than doubled to A$3.4 billion. This made health care the biggest investment sector, attracting 41.7% of all Chinese money, relegating commercial real estate (36.7%) to second place.</p>
<p>The declines were driven by state-owned enterprises pulling back on foreign investment. In 2018 13% of Chinese money came from state-owned enterprises, with 87% from private companies.</p>
<p>This reflects the Chinese government’s greater control of capital outflows and pressure to reduce debt levels, as well as the Australian government’s security concerns about Chinese influence.</p>
<p>It also reflects global dynamics. Chinese investment in Australia is no longer isolated from scrutiny of Chinese investment in North America and Europe. Excluding Chinese technology from telecommunications infrastructure is a notable example.</p>
<p>In the United States, Chinese investment fell 83% to US$4.8 billion from US$29 billion in 2017. In Canada, it fell 47% to US$3.4 billion from US$6.2 billion in 2017.</p>
<p><strong>Balancing competing concerns</strong></p>
<p>Australian governments, corporations and professional advisers need to consider what types of Chinese investments and investors are desired and actively welcome in Australia.</p>
<p>Our report points to areas where Chinese investment is in Australia’s national interest and benefits the global integration and competitiveness of Australian industries.</p>
<p>Health care is a key example.</p>
<p>Chinese investment in health care companies has both provided capital for innovation and facilitated entry into the Chinese market.</p>
<p>Take the Chinese private equity firm <a href="https://www.smh.com.au/business/markets/sirtex-medical-goodbyes-varian-backs-1-9b-chinese-offer-from-cdh-20180614-p4zlk1" target="_blank">CDH buying Sirtex Medical Ltd</a> for A$1.9 billion. Sirtex is an Australian medical device company with a treatment for liver cancer. Its acquisition enables expansion into China, which accounts for more half of the global incidence of liver cancer.</p>
<p>In mining, lithium provides an example of Chinese investment adding value. <a href="https://www.tianqilithium.com.au/site/About-Us/company-overview" target="_blank">Tianqi Lithium</a> has invested A$700 million in a <a href="https://www.tianqilithium.com.au/site/About-Us/tianqi-lithium-global" target="_blank">processing plant</a> in Perth. The plant will provide about 200 jobs and produce 48,000 tonnes of battery-grade lithium hydroxide for export.</p>
<p>Even in food and agriculture, which has generated much controversy over land acquisitions, we see room for advantageous investment processing and value-adding facilities, such as regional abattoirs.</p>
<p>Signalling Australia’s economic interests in Chinese and foreign investment is crucial to Australia’s prosperity.</p>
<p>At a time of global uncertainty, Australian politicians, bureaucrats, business leaders, educational organisations and others must work quietly and respectfully with their Chinese counterparts to allay community concerns and consolidate Australia’s reputation as a welcoming and proactive partner.</p>
<p><em><strong>Hans Hendrischke</strong>, Professor of Chinese Business and Management, University of Sydney</em></p>
<p><em>The authors contributed to the Demystifying Chinese Investment in Australia Report.<img src="https://counter.theconversation.com/content/114984/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1"></em></p>
<p><em>This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/chinese-investment-in-australia-is-down-36-its-time-for-a-more-balanced-debate-about-the-national-interest-114984" target="_blank">original article</a>.</em></p>
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Chinese investment in down 36% - it’s time for a more balanced debate about the national interest

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<p>EXPERT OBSERVATION</p>
<p>Over the past five years, Chinese developers have significantly ramped up their presence building landmark residential towers around the world, including along the skyline of the Australian east coast.</p>
<p>In 2018, Chinese developers and investors purchased $1.3 billion worth of Australian residential sites; equivalent to 31% of total sites sold.</p>
<p>This was down substantially from the $2.02 billion recorded a year earlier, although the share of total sales fell only slightly from 33%; reflecting a wider, slower-paced market.</p>
<p>There is no denying Chinese developers have met with challenges throughout this time. From the Chinese government attempting to moderate capital outflow, to locally, the impact when major domestic banks restricted lending to offshore borrowers.</p>
<p>This limited Chinese developers’ ability to rely on deep databases of clients familiar with projects in their home towns.</p>
<p>In addition, current challenges being faced by all developers include the local changes to Foreign Investment Review Board (FIRB) rules and the Australian Prudential Regulation Authority (APRA) encouraging stricter lending practices for investors cooling off-the-plan presales—not to mention the introduction of state-based surcharges.</p>
<p>The majority of Chinese developers which have entered the Australian landscape are settling in for the long haul, now diversifying their portfolios to adapt to local market trends.</p>
<p>Over the past year, the likes of Zone Q, China Poly Group, Yuhu Group and Aqualand have increased their exposure to office assets and this trend is likely to continue in 2019.</p>
<p>Also they are shifting weight towards lower-density residential with 41% of sites purchased in 2018, up from 29% in 2017. Overall however with a 58% share, the more accustomed, higherdensity sites still dominated; this past year moving away from medium-density sites.</p>
<p>Chinese developers and investors have purchased more than 25% of the residential development sites that have transacted each year over the past five years.</p>
<p>Factoring inlead times for planning and marketing the project, naturally the number of Australian apartments built by Chinese developers only started to ramp up in 2016, and were located in Sydney, as shown in Figure 1.</p>
<p>In saying this, reflecting on the past five years, Chinese-developed projects have tended to move hastily into construction mode once development approval is granted; in many cases citing a lower reliance on funding (when compared to a local developer).</p>
<p>Almost 11% of all new apartments, or 5,160 apartments, were built by Chinese Collective Sales for Development September 2018 Australian Residential Development Review 2018 developers in Sydney, Melbourne and Brisbane in 2018.</p>
<p>Still concentrated on the major east coast cities, this share is projected to rise to 15% in 2019 for those 5,440 apartments currently under construction, then increase to 22% in 2021.</p>
<p>This includes those projects which have already commenced, and those with development approval which are currently being marketed (7,360 apartments).</p>
<p>With current headwinds heading into 2019, the likelihood of all projects proposed by Chinese developers going ahead in this timeframe is diminishing, except those with an exceptional product.</p>
<p>Projects submitted for development approval and those already with approval, but not yet having started a marketing campaign, tend to taper-off substantially with less than 6% of total projects in the pipeline each year beyond 2023.</p>
<p>Going forward, developers—both Chinese and local—must hold realistic expectations following a residential market in correction mode after a lengthy period of significant growth. It will be imperative proper time is allocated to strengthen their position in the market for when the time to proceed arrives.</p>
<p><em>MICHELLE CIESIELSKI is a Director within Research &amp; Consulting at Knight Frank</em></p>
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Chinese development in Australia in 2019: Knight Frank's Michelle Ciesielski

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<p><span>Chinese investment in Australia dropped to AUD 8.2 billion in 2018 – down by 36.3% from 2017, according to the latest research from professional services firm KMPG.</span></p>
<p>KMPG's Demystifying Chinese investment in Australia report, written with The University of Sydney, found that private companies dominated the investment landscape.</p>
<p>They accounted for 87% of deal value and over 92% of deal volume, with an overall trend towards smaller sized deals.</p>
<p><span>Healthcare was the most popular sector for Chinese investors, with commercial real estate falling to second position. </span></p>
<p><span>Chinese investors still see Australia as a relatively attractive country to invest in, the report notes, with an improving political climate, but they also confirmed that they are finding it harder to get capital out of China, and there are challenges raising capital in Australia.</span></p>
<p><span> Knight Frank contributed data and analysis on commercial real estate transactions.</span></p>
<p><a href="https://www.propertyobserver.com.au/images/2019/4/8/Chinese%20ODI%20to%20Austraia%20.png" target="_blank">Click here</a> to enlarge: </p>
<p><span><img src="https://www.urban.com.au/images/2019/4/8/Chinese%20ODI%20to%20Austraia%20.png" alt=""></span></p>
<p><span>“Despite Chinese global outbound direct investment actually growing by 4.2% in 2018, Australia has felt the pinch of a significant reduction to our shores, reflecting the impact of policy changes in China," said Doug Ferguson, KPMG's head of Asia and international markets and report co-author.</span></p>
<p>"Our rate of decline has been accelerating and is now closer to the trend observed in the United States and Canada, where Chinese Overseas Direct Investment dropped by 83% and 47% respectively in 2018.”</p>
<p><a href="https://www.propertyobserver.com.au/images/2019/4/8/EU%20US%20AND%20AUSTRALIA%20.jpg" target="_blank">Click here</a> to enlarge:</p>
<p><span><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/4/8/EU%20US%20AND%20AUSTRALIA%20.jpg" alt=""></span></p>
<p><span>“While this annual result brings Chinese ODI in Australia back to the second lowest level since the mining and gas driven investment peak year of 2008, there is no reason why Australia can’t return to higher levels of Chinese capital inflow seen historically.”</span></p>
<p><span>“2018 need not define a trend of lower Chinese investment in Australia into the future but it is a moment to reflect upon. There are a great many opportunities for Chinese companies to contribute towards the development and internationalisation of Australian industries in the coming years. Australian companies seeking further investment must continue to explore and present unique opportunities that appeal to the key value drivers of targeted Chinese investors,” Mr Ferguson said.</span></p>
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<p><span>Fellow author, Professor Hans Hendrischke, Professor of Chinese Business &amp; Management at the University of Sydney Business School cited a number of factors in the decline.</span></p>
<p><span>“The continued reduction in Chinese investment in Australia reflects a combination of factors, including changing drivers of Chinese ODI such as an increased demand for outbound investment in high value-added sectors to ‘bring back’ expertise and high-quality brands and products that can support China’s industrial upgrading and meet the evolving demands of Chinese middle class consumers. </span></p>
<p><span>"As part of this trend, large strategic investments in resources, energy and infrastructure have given way to smaller investments, into projects that are tactical and directly linked to Chinese consumer market demand. </span></p>
<p><span>"This is particularly evident in the targeting of the Australian healthcare sector by Chinese investors.”</span></p>
<p><strong>REPORT SUMMARY</strong></p>
<p><strong>Investment by Industry</strong></p>
<p><span>After a steady growth trajectory since 2015, healthcare was the most significant sector for Chinese investment in 2018 representing 41.7% of total ODI, up 111% from 2017 to AUD 3.4 billion; followed by commercial real estate (36.7%); energy/gas and oil (8.8%); and mining (5.6%).</span></p>
<p><span>Healthcare </span><span>saw three mega deals of over AUD 500 million were recorded in 2018 - from CDH Investment and China Grand Pharm into Sirtex Medical; By-Health into Life-Space Group; and China Jianyin’s Investment into Nature’s Care. There were another five other significant healthcare deals completed including a Chinese/Hong Kong consortium investing into IVF and fertility clinic group, Genea.</span></p>
<p><a href="https://www.propertyobserver.com.au/images/2019/4/8/chinese%20investment%20by%20industry.jpg" target="_blank">Click here</a> to enlarge:</p>
<p><span><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/4/8/chinese%20investment%20by%20industry.jpg" alt=""></span></p>
<p><span>Commercial real estate </span><span>remained a leading sector for Chinese investment in 2018, accounting for AUD 3 billion of investment (down from AUD 4.4 billion in 2017), continuing to attract a similarly significant proportion (11%) of China’s total global overseas real estate investment. Mixed use development accounted for 40% of total investment inflow, driven by the Yuhu Group’s AUD 1.1 billion acquisition of Dalian Wanda’s property assets in Australia. Investment in the office sector made up 31% of the total, supported by Zone Q’s acquisition of 55 Clarence Street. Residential development sites also continued to account for a significant share (18%) of investment in Australian real estate.</span></p>
<p><span>“Australia continues to attract a high level of Chinese investment into commercial real estate, with total investment reaching AUD 3 billion in 2018. While this was 31% down on the 2017 level, the drop was in line with a wider global trend toward lower Chinese outbound investment in other key markets such as the US and UK during 2018. So Australia remains a key destination, taking around 11% of total Chinese outbound real estate investment,” said Ben Burtston, Partner, Head of Research &amp; Consulting, Knight Frank Australia.</span></p>
<p><span>“Changing conditions in the residential market have acted to dampen the appetite for large development site acquisitions, although we continue to see a high volume of private investment in the office sector in particular. Looking ahead, we expect to see more Chinese investors venturing beyond Sydney and Melbourne as market conditions improve in the likes of Brisbane, Perth and Adelaide.”</span></p>
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<p><span>Three deals in 2018 saw Chinese investment in </span><span>energy (oil and gas) </span><span>grow 295% to AUD 726 million, however this was primarily driven by ENN’s acquisition of more shares in Santos for AUD 619 million. The other deals were smaller scale investments in Queensland and Western Australia.</span></p>
<p><span>The </span><span>mining </span><span>sector accounted for 5.6 percent of the total Chinese investment inflow with five mining deals totalling AUD 464 million in 2018, a decrease of over 90 percent from 2017. Chinese mining investment in Australia returned to 2016 levels after a peak in 2017 due to Yancoal’s AUD 3.4 billion acquisition of Rio Tinto’s thermal coal assets.</span></p>
<p><span>Renewable energy </span><span>recorded four new investments in 2018, totalling just under AUD 400 million, which is a similar level to 2016 and an increase over the AUD 124 million recorded in 2017.</span></p>
<p><span>Food and agribusiness </span><span>investment totaled less than AUD 100 million in 2018, while the only </span><span>infrastructure and construction </span><span>transaction recorded was John Holland’s (owned by CCCI) acquisition of engineering group RCR Tomlinson’s rail business.</span></p>
<p><strong>Investment by Geography</strong></p>
<p><span>Chinese capital was again focused in NSW in 2018, with the state accounting for over half (53%) of all investment: AUD 4.4 billion. Victoria saw a drop from 36% of total investment in 2017 to 27% in 2018. Investment in South Australia rose to AUD 640 million from AUD 455 million, with the state attracting 8% of total inflows. Queensland investment fell to AUD 396 million in 2018, compared to AUD 667 million last year. Tasmania accounted for 4% of total investment, with deals worth AUD 342 million, while Western Australia saw inflows of AUD 263 million.</span></p>
<p><span><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/4/8/investment%20by%20state.jpg" alt=""></span></p>
<p><strong>Investment by Deal Size</strong></p>
<p><span>The trend toward smaller deals continued in 2018 with an average deal value of AUD 111 million, down from AUD 130 million in 2017. The number of deals also dropped to 74 from 100. 85% of deals fell below the AUD 100 million mark. This reflects more deals being done in mid-sized Australian markets in health, technology, services and real estate sectors.</span></p>
<p><strong>Investment by Ownership</strong></p>
<p><span>Private investors accounted for 92% of the Chinese deal volume and 97% of deal value in 2018, up from 83% in number and 60% in volume in 2017.</span></p>
<p><span>Investment by State Owned Enterprises (SOEs) dropped to just over AUD 1 billion – representing 8% of deal volume and 13% of deal value.</span></p>
<p><a href="https://www.propertyobserver.com.au/images/2019/4/8/investment%20by%20ownership%20.jpg" target="_blank">Click here</a> to enlarge:</p>
<p><span><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/4/8/investment%20by%20ownership%20.jpg" alt=""></span></p>
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<p><strong>Chinese Investors in Australia Survey</strong></p>
<p><span>The Chinese Investors in Australia Survey involved surveys and interviews with senior executives from 56 Chinese-invested companies located in Australia on their perceptions of the Australian investment climate and key challenges they face in Australia. The research was undertaken in February 2019.</span></p>
<p><a href="https://www.propertyobserver.com.au/images/2019/4/8/survey%20.jpg" target="_blank">Click here</a> to enlarge:</p>
<p> <span><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/4/8/survey%20.jpg" alt=""></span></p>
<p><span>Source: KPMG</span></p>
<p><span>Commenting on the survey results, Professor Hendrischke said the investment climate for Chinese companies in Australia was mixed in 2018. While Australia remains a preferred investment destination relative to other countries, Chinese executives are finding it harder to get investment approvals and capital out of China.</span></p>
<p><span>“Our local survey also revealed mixed sentiment amongst the perceptions of Chinese investor," Hendrischke noted.</span></p>
<p><span>"There was an increase in the number of Chinese executives who told us they feel welcome to invest in Australia - up to 38 percent, compared to 35 percent in 2017. However there was also an increase in the percentage of respondents who feel unwelcome, from 15% to 19%. </span></p>
<p><span>"One area of note is the improving perceptions around Australia’s political environment regarding China, with the number of respondents saying that past year’s political debate has made them more cautious to invest falling to 59%, compared to 70% in 2017.”</span></p>
<p><span>“Our survey and interviews with Chinese investors indicate a level of concern around the costs of doing business. Australia continues to be seen by Chinese investors as a more expensive country to operate in than the UK, US and Canada, with challenges noted in areas such as obtaining finance, low profitability, government approvals, finding qualified staff and building relationships with local Australian management,” added the Professor.</span></p>
<p><strong>Outlook</strong></p>
<p><span>“Looking forward, it seems Australia’s investment links with China may be increasingly affected by global, rather than purely bilateral dynamics. At the same time, the recent decline in Chinese investment in Australia provides an opportunity to reflect on the role that future Chinese investment should play in Australia’s long-term domestic economy and our economic integration into the Asian region. This should be done with clear focus on the new opportunities for foreign investment which are expected to continue to open up in the China market, including with the implementation of the new Foreign Investment Law and related rules and regulations,” said Mr Ferguson.</span></p>
<p><span>“There is still a long journey ahead for many Australian industries that have the potential to receive much greater sums of Chinese investment – but there is much that must be done on both sides to improve the perception of the Australian market to Chinese investors,” he concluded.</span></p>
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Chinese investment in Australia falls 36.3 percent in 2018

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<p>A private Chinese investor has paid $5.5 million on a circa 6.3 per cent yield for a Broadmeadows industrial facility.</p>
<p>Dawkins Occhiuto’s Chris Jones and Walter Occhiuto brokered the deal.</p>
<p>Situated at 37-45 Camp Road, the property was sold fully leased to Telstra on a new five year lease, with two further three year options.</p>
<p>It has a a passing net income of $346,000 per annum.</p>
<p>The property comprises a purpose-built, 2178 square metre office (657sqm) and warehouse building with 102 square metres of canopy, on a 13,890 square metre site.</p>
<p>Mr Jones said the property offered a well-located, high quality, industrial investment with a blue chip tenant in a market with limited opportunities.</p>
<p>"Quality industrial investments around Melbourne have become difficult to attain and particularly in the north where exceptional transport connections and limited serviced land and development opportunities have driven substantial rental growth for existing facilities over the past 12 months."</p>
<p>He said supply constraints and the concomitant rental growth in the north were likely to drive further strong sales results and yield compression.</p>
<p>"Industrial yields have tightened by up to 50 basis over the last 12 months and are now at their lowest point in at least a decade. We will continue to see that tightening while industrial property offers such an attractive differentiation to other types of property investment,’’ Mr Jones stated. </p>
<p>He said the Expressions of Interest campaign had attracted significant interest from a wide range of local, interstate and off-shore buyers.</p>
<p>The vendor was a Melbourne based private investor.</p>
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Chinese investor purchases Telstra leased Broadmeadows facility

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<p>Knight Frank’s latest report, Chinese Developers in Australia – Market Insight 2019, has found that 31% of Australian development sites in 2018 were bought by Chinese developers who purchased $1.3 billion worth of Australian residential development sites in 2018.</p>
<p>This figure was down from <a href="https://www.urban.com.au/expert-insights/investing/80577-one-third-of-australian-development-site-sales-in-2017-to-chinese" target="_blank">$2.02 billion in 2017</a>, or one-third of all site sales.</p>
<p>Of all Australian sites purchased by Chinese developers and investors in 2018, 41% were suited to low density (single dwellings or landed properties) – up from 29% in 2017 and just 2% in 2013.</p>
<p>According to Knight Frank’s Head of Residential Research, Australia Michelle Ciesielski, over the past five years, Chinese developers have significantly ramped up their presence building landmark residential towers around the world – including along the skyline of the Australian east coast.</p>
<p>“Chinese developers and investors purchased $1.3 billion worth of Australian residential development sites last year. This was down substantially from the $2.02 billion recorded a year earlier, although the share of total sales fell only slightly from 33% - reflecting a wider, slower-paced market.”</p>
<p><img src="https://www.urban.com.au/images/2019/2/5/Knight%20Frank%20China%20Chart.JPG" alt=""></p>
<p>Ciesielski said there is no denying Chinese developers have met with challenges throughout this time.</p>
<p>“From the Chinese government attempting to moderate capital outflow, to locally, the impact when major domestic banks restricted lending to offshore borrowers which limited the ability to rely on deep databases with clients familiar with projects in their home towns – all of this has had an impact on Chinese outbound investment.</p>
<p>“In addition, changes to Foreign Investment Review Board (FIRB) rules and the Australian Prudential Regulation Authority (APRA) encouraging stricter lending practices for investors cooling off-the-plan presales, not to mention the introduction for state-based surcharges – all current challenges also being faced by local developers.”</p>
<p>According to Knight Frank’s Partner, Head of Asian Markets, Australia Dominic Ong, the majority of Chinese developers who have entered the Australian landscape are settling in for the long haul – now diversifying their portfolios to adapt to local market trends.</p>
<p>“Over the past year, the likes of Zone Q, China Poly Group, Yuhu Group and Aqualand have increased their exposure to office assets and this trend is likely to continue in 2019.</p>
<p>“In addition, Chinese developers are shifting weight towards lower-density residential with 41% of sites purchased suiting low-density in 2018 – up from 29% in 2017,” said Ong.</p>
<p>The report also found that almost 11% of all new apartments – out of 5,160 apartments built in 2018 – were by Chinese developers, with this share projected to rise to 22% in 2021 for the major Australian cities.</p>
<p>According to Ciesielski, these new apartments were concentrated on the major east coast cities of Brisbane, Sydney and Melbourne.</p>
<p>“This includes those projects which have already commenced, and those with development approval which are currently being marketed. With current headwinds heading into 2019, the likelihood of all projects proposed by Chinese developers going ahead over the next couple of years is diminishing, except those with an exceptional product.</p>
<p>“Projects submitted for development approval and those already with approval, but not yet having started marketing campaigns, tend to taper off substantially for Chinese developers – with less than 6% of total projects in the pipeline.</p>
<p>“Going forward, developers – both Chinese and local – must hold realistic expectations following a residential market in correction mode after a lengthy period of significant growth. It will be imperative proper time is allocated to strengthen their position in the market for when the time to proceed arrives,” concluded Ciesielski.</p>
<p>In 2016 Chinese developers and investors purchased $2.4 billion worth of Australian residential development sites, some 9.4%% stronger than 2015.</p>
<p>The figure was up by 36% from 2012.</p>
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