Kpmg

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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.
KMPG's Demystifying Chinese investment in Australia report, written with The University of Sydney, found that private companies dominated the investment landscape.
They accounted for 87% of deal value and over 92% of deal volume, with an overall trend towards smaller sized deals.
Healthcare was the most popular sector for Chinese investors, with commercial real estate falling to second position. 
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.
 Knight Frank contributed data and analysis on commercial real estate transactions.
<a href="https://www.propertyobserver.com.au/images/2019/4/8/Chinese%20ODI%20to%20Austraia%20.png" target="_blank">Click here</a> to enlarge: 
<img src="https://www.urban.com.au/images/2019/4/8/Chinese%20ODI%20to%20Austraia%20.png" alt="">
“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.
"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.”
<a href="https://www.propertyobserver.com.au/images/2019/4/8/EU%20US%20AND%20AUSTRALIA%20.jpg" target="_blank">Click here</a> to enlarge:
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“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.”
“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.
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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.
“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. 
"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. 
"This is particularly evident in the targeting of the Australian healthcare sector by Chinese investors.”
REPORT SUMMARY
Investment by Industry
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%).
Healthcare 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.
<a href="https://www.propertyobserver.com.au/images/2019/4/8/chinese%20investment%20by%20industry.jpg" target="_blank">Click here</a> to enlarge:
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Commercial real estate 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.
“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.
“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.”
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Three deals in 2018 saw Chinese investment in energy (oil and gas) 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.
The mining 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.
Renewable energy 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.
Food and agribusiness investment totaled less than AUD 100 million in 2018, while the only infrastructure and construction transaction recorded was John Holland’s (owned by CCCI) acquisition of engineering group RCR Tomlinson’s rail business.
Investment by Geography
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.
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Investment by Deal Size
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.
Investment by Ownership
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.
Investment by State Owned Enterprises (SOEs) dropped to just over AUD 1 billion – representing 8% of deal volume and 13% of deal value.
<a href="https://www.propertyobserver.com.au/images/2019/4/8/investment%20by%20ownership%20.jpg" target="_blank">Click here</a> to enlarge:
<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="">
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Chinese Investors in Australia Survey
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.
<a href="https://www.propertyobserver.com.au/images/2019/4/8/survey%20.jpg" target="_blank">Click here</a> to enlarge:
 <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="">
Source: KPMG
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.
“Our local survey also revealed mixed sentiment amongst the perceptions of Chinese investor," Hendrischke noted.
"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%. 
"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.”
“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.
Outlook
“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.
“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.
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j.ballantyne1990-6AQqhLzZaK

Chinese investment in Australia falls 36.3 percent in 2018

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EXPERT OBSERVER
Australia is closing in on the United States to become the primary destination for Chinese offshore capital as domestic regulation forces Chinese investors diversify their strategies.
Australia is the second largest recipient of Chinese overseas capital after the United States, with US$99 billion since 2008, just lower than the US$138 billion that reached the U.S.
But a change of pace in overall capital allocation in the two markets could see Australia nudge in on its rival.
In line with a slowdown in Chinese outbound investment overall, last year, Chinese investment in Australia declined by 11 percent, while in the U.S. it was 35 percent according to the report Demystifying Chinese Investment in Australia, produced by KPMG and The University of Sydney, in collaboration with JLL.
Overall Chinese investment volumes will continue to fall, but Australia’s position remains strong as it continues to be globally competitive in areas that China wants to grow, including real estate, health and wellbeing, technology and mining resources.
And despite capital controls in their own country, Chinese investors remain bullish, as the sheer size of their economy and GDP, forces them to diversify.
“They are investing with a long-term focus – and this is positive for Australia,” says Ferguson.
Australian real estate continues to hold Chinese interest as volumes remain strong globally, with A$4.4 billion invested in the Australian market last year, equating to 11.5 percent of the country’s total real estate allocation.
In fact, despite the drop in overall outbound investment, the volume of real estate snapped up by Chinese investors globally has held strong. JLL’s 2017 China 12 report shows that its total real estate investment, including land sales, totaled US$32 billion – about 20 percent of total investment – which is close to the US$33 billion invested the previous year.
There has, however, been a noticeable shift away from the trophy assets Chinese investors have been known for, and more towards high quality investments regardless of deal size.
The investor profile has changed, too, with private Chinese companies filling the gap left by state owned enterprises, the number of which dropped for the first time since 2014.
The fundamentals of Australian real estate will ensure it continues to hold its own in the race for Chinese capital, says Michael Zhang, Head of JLL’s China desk in Australia.
“The macroeconomic framework is supportive, while the market is attractive from a global perspective,” Zhang says.
“Economic fundamentals are robust, population growth is solid, market transparency is high, and returns are broadly higher relative to comparable markets globally.”'
Doug Ferguson is the Head of Asia and international markets at KPMG Australia
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Australia competing for Chinese offshore capital

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The businesswoman behind an alleged multimillion-dollar Pilbara Ponzi scheme, Veronica Macpherson, who headed the Macro Group of companies before they were wound up, has been convicted in the Perth Magistrate’s Court of charges including failing to assist a liquidator, failing to deliver books to a liquidator and failing to verify a statement in writing to a liquidator.
She did not appear in court and was convicted in her absence.
In May the Federal Court ordered six of Ms Macpherson’s companies to be wound up. A further 18 companies were wound up in June.
A recent report on the Macro group from the KPMG liquidator Hayden White of KPMG indicated only $300,000 had been found across all of Macro's bank and legal trust accounts.
The liquidators have identified that at least $150 million was successfully raised by the group.
"From our preliminary enquiries and our review of the available books and records, it appears that the Macro Group successfully raised at least $150 milion, $120 million of which was attributable to investor funds, sourced at interest rates as high as 50 percent," KPMG said.
It advised any recovery from Macro's landholdings was "highly uncertain" given the subdued property market.
The ASIC investigation continues into collapsed property developments of Perth businesswoman Veronica MacPherson.
The ASIC paperwork suggests they have lost contact with her having given a Winthrop address.
Macro Realty Developments’ brand ambassador was former rugby champion, <a href="http://www.macrorealty.com.au/2015/11/workin/" target="_blank">David Campese</a>.
The Macro Group was essentially set up to acquire and develop property holdings in Western Australia’s Newman region, with the intention of displacing the existing mine camp infrastructure, to create more permanent communities for the fly-in-fly-out workforce. The group was largely debt funded through non-traditional financiers and from private investors, largely overseas based. 
Liquidators estimated close 2,000 private investors invested about $120 million to the projects run by Ms MacPherson and the Macro Group of companies.
Singaporean and Malaysian investors were promised returns as high as 18 percent yearly from Macro Realty Developments Pte Ltd (MRD).
There were 651 investors from Malaysia, Singapore (981), Australia (31), the United Kingdom (58) and continental Europe (17).
The 244-lot estate sits undeveloped on the outskirts of Newman. There was also a Kurra estate.
"Whilst we continue to explore all available options to maximise the value of the Macro Group’s land holdings in conjunction with the receivers and managers, and other secured creditors, we do not, at this stage, consider a realisation of the assets will produce an outcome sufficient to allow for a return to unsecured creditors or investors," KPMG advised. 
Macro's developments were launched at the height of WA's mining construction boom.
It also came at a time when the state government has its liveable cities in the Pilbara initiative.
When the scheme collapsed, Macpherson’s financial services licence and passport were cancelled and her other active Australian companies were wound up by the Australian Federal Court.
In mid-2016 after Macro was accused of running a Ponzi scheme, MacPherson blogged that it "stemmed from a blackmail threat that we quite correctly rejected."
"We are forcefully fighting back against these unsubstantiated claims that are completely without merit. 
"This has created a diversion from our core mission; to create proper housing, sustainable and thriving communities in the Pilbara, so I thought it best to begin blogging about our journey towards meeting the goals of our initiative and providing some insight into the process of getting there," she blogged.
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Macro liquidators find $300,000 after at least $150 million was raised by the group

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Home prices in Sydney and Melbourne will likely adjust after having been pushed to their peaks but they won’t resemble a ‘bursting of the bubble’, according to KPMG Economics. 
The report, titled Housing affordability: What is driving house prices in Sydney and Melbourne?, says the adjustment in prices is unlikely to be abrupt.
“Our analysis suggests that while short term factors have pushed median dwelling prices for Sydney and Melbourne above their long term equilibrium prices by about 14 percent and 8 percent respectively (as at the end of FY2016), this degree of disequilibrium has been experienced previously in these housing markets and they have managed to return to equilibrium without price movements resembling a ‘bursting of the bubble’,” it said.
Sydney's median home price are expected to decline, minus the effect of inflation, of up to 11 per cent as the cycle turned after 2019, but inflation effects would limit the nominal fall in price from $980,000 to $955,000 in 2021, says the report.
In Melbourne, the likely real decline of 4 per cent would mean a small decline in prices after inflation. The nominal median dwelling price is likely to plateau at $740,000 by June 2019, before peaking around $825,000 in 2021.
The report noted that the movement in Sydney house prices has been more volatile since the GFC, albeit without the same degree of volatility in the supply, demand or cost variables. 
“This data suggests that when the labour market and monetary policy are stable, investing in housing is more attractive as the underlying market risk is lower in these circumstances,” it said.
The report noted that the prospect of home ownership for “many seems to have become even more distant”. 
It said various commentators have blamed a range of factors that have ‘caused’ house prices to rise, including high net international migration, not enough social housing, limitations on the timing and release of new ‘greenfields’ development sites, and even the price of smashed avocado on toast for breakfast at a café. 
KPMG Economics says it found evidence of a long-run relationship between median dwelling prices and variables relating to the stock of dwellings, population and borrowing by residential property investors. It said each of these variables affect prices in different ways and different degrees.
It forecast that the Sydney housing market will experience a greater adjustment than will Melbourne, “but nonetheless this adjustment is unlikely to be abrupt or to significantly overshoot the long run equilibrium price on the downside”. 
In conclusion, it reiterated its solutions suggested in a previous report, Housing Affordability : What can be done about the Great Australian Dream, saying the steps include,
<ul>
<li>CGT reduction: reducing the capital gains tax discount from 50 percent to 25 percent, thereby making property investment marginally less attractive. </li>
<li>Aggregate property tax: abolish stamp duty on the transfer of residential property and conflate rates, land tax, insurance taxes and emergency service levies into a new Property Services Tax.</li>
<li>Systemic reforms aimed at maintaining the supply and diversity of land and housing in established and growth areas, through setting targets, streamlining planning and empowering public supply. </li>
<li>Targeted Reforms aimed at improving access to those groups who are the most excluded from affordable home ownership. This package would focus on more low cost housing, improved assistance to those who need it, and promoting shared equity.</li>
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