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China’s appetite for Australian real estate has not been dampened by the recent gains in the Australian dollar.
New research has revealed that Australia has been slow to embrace China’s transition from manufacturer to capital exporter.
Two years on from the Global Financial crisis, the Chinese economy is still awash with liquidity following the massive $1.7 trillion credit expansion between November 2008 and January 2010.
This torrent of capital has been seeking new avenues for investment, inflating the prices of almost every asset class it touches.
The retail property sector in Beijing, for instance, posted strong capital gains of 16% in 2009 despite vacancy rates of 21%.
In contrast, the vacancy rate in the Australian retail property sector was just under 3% by the end of 2009 but recorded capital losses for the same year.
Other asset classes affected by the China boom include not only the Chinese stock markets and property markets, but also rare earths, art and luxury wines.
With local asset prices now arguably peaking, Chinese investors have been looking for new investment alternatives, with many turning to Australian real estate.
Australian real estate is prized by many Chinese investors not only due to its inherent quality and relative value, but also because the ownership of the Australian property conveys status on the purchaser.
The ability of Chinese investors to export their capital into offshore investments has been assisted by China’s “Go-Global” strategy and a gradual relaxation of capital outflow restrictions.
The research, conducted by property economist, Erin Rolandsen, highlights the evolving significance of outbound foreign investment by Chinese investors, especially given that China boasts the fastest growing population of millionaires in the world.
It was estimated that in October 2010 there were 805,000 millionaires in China, eclipsing Australia which has 740,000.
Chinese investment in Australian commercial property since 2008 has been crucial to supporting the sector at a time when the number of transactions has fallen significantly.
While many analysts have feared that the rising Aussie dollar would deter Chinese investment, anecdotal reports suggest that this is not necessarily the case.
Many Chinese investors perceive that investment in Australian currency is a hedge against further declines in their own currency - the Chinese renminbi - which has been controversially pegged to the declining US dollar.
Although there are numerous factors supporting Chinese investment in Australian commercial real estate assets, Australia has been relatively slow to capitalise on the trend.
By contrast, some firms in the USA have dedicated teams that focus purely on Chinese investors.
YONG Real Estate has strong ties to the Chinese market: its founder, Peter Huang, is the current president of the Australian-Chinese Chamber of Commerce and nearly one-thirds of YONG Corporate office staff are chinese-born.
"We are getting requests every day from wealthy Asian investors seeking to take advantage of the perceived current trough in Australia’s commercial property market", Mr Huang said.
“For instance, one Chinese buyer we have been dealing with owns $110 million in commercial property assets in China.
He is looking to move permanently to Australia and establish a significant portfolio for himself here.”
Ms Rolandsen noted that this kind of capital could be very important in the coming months as the retail property sector prepares for sales from the Centro portfolio.
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