Asian real estate investors are increasingly buying assets in second-tier cities as prices in gateway capitals around the world become expensive, delegates at MIPIM Asia heard last week.
Speaking in Hong Kong, Charles Jahnke, CEO of China United Real Estate Group, said Chinese buyers in the US had also shifted from residential to commercial buildings.
“We find that, in the last six months, Chinese wealthy individuals and the smaller and medium-sized funds have started to look at commercial office buildings in the $10-$50m price range,” said Jahnke.
As prices in New York and California have climbed, Chinese investors have increasingly sought properties in Houston and Dallas, he said.
Scott Picken, the founder and senior managing partner of Wealth Migrate, said interest in commercial properties among Asian buyers has grown. Separately, Asian buyers are also seeking assets in the healthcare and medical sector, he said. However, demand for properties in gateway cities such as London remained strong, he added.
Natalie Breen, a senior foreign counsel at Norton Rose Fulbright Australia, said Asian demand for Australian real estate is healthy.
“The issue with Australia is that there is strong domestic competition from REITs and super funds; by being on the ground, they get easier access,” she said.
Breen added that Chinese buyers are also taking a longer-term view as they begin taking on development risk by investing in projects.
As cap rates for office buildings compress, foreign buyers of Australian properties are “moving up the risk curve with many now looking at developments such as student accommodation and developments in the agricultural space,” she said.
Suchard Chiaranussati, the managing director of SC Capital Partners, a Singapore-based private equity real estate firm, told the conference the company sees opportunities in Seoul and in southern China.
“We are finding that in Tokyo the low hanging fruit is not there anymore,” he said, as prices in the city climb. However, the company is investing in Australia, and is in the final stages of completing a $100m real estate investment in Sydney.
While concerns were raised regarding the slowdown of the Chinese economy and its impact on outbound investments, real estate companies said the impact is slight.
Ronnie Chan, the chairman of Hong Kong-listed Hung Lung Properties, said that concerns that so-called ghost towns in China will add to the financial risk in the economy have been exaggerated. For local Chinese investors, he said, the real estate market has become an avenue to park their wealth because the domestic stock market is like a “casino”, the local bond market is “barely developed”, and bank deposits pay very low interest.
“So they turn their wealth into blocks and blocks of residential developments with hardly any debt,” he said.
“So long as there is no debt, it is not going to cause any trouble financially. Why commentators in the West are oftentimes wrong is that they think the Chinese market is the same as their own; which is not the case.”.
Chan also said he expected the current oversupply of commercial and residential developments in China to lead to a consolidation in the industry.