China's new breed of investors are becoming increasingly important in real estate investment, but there are signs the government in Beijing is seeking to curtail the flow of debt behind international deals.
Cross-border real estate transactions by Chinese capital were valued at $26.6 bn (€220 bn) last year, according to the Active Capital Global Report published in recent days by Knight Frank.
This puts the Chinese in second place behind the US ($45.4 bn) in terms of the regional sources of capital driving cross-border real estate investment. Chinese capital has been especially prominent in 'Super City markets' such as London, Paris, Berlin in Europe; Los Angeles and New York in the US; Sydney in Australia and the Asian heavyweights of Shanghai, Hong Kong, Tokyo and Singapore.
The London market has been a major focus, with CBRE reporting that China and Hong Kong, whcih the UK handed back to China in 1997, accounted for 90% of commercial real estate transactions in the City financial district during the first half of 2017.
In May, Hong Kong-based CC Land finalised the largest transaction this year in the City: the €1.35 bn acquisition of The Leadenhall Building, known as The Cheesegrater, from British Land and Oxford Properties.
Government intervention
The latest edition of EuroProperty, the weekly sister-publication of PropertyEU, reports that conversations in City of London property circles are increasingly turning, not to Brexit, but to how long the Chinese money will last.
The question has been stoked by suggestions that the central government in Beijing is clamping down on debt-fuelled transactions. Recent media reports claim that China's president Xi Jinping has approved a ban on state-owned banks issuing new loans to Chinese conglomerate Dalian Wanda for its international real estate activities.
Other private groups said to be targetted are insurers Anbang and Fosun, as well as airline and hotels group HNA. The four companies have been behind $55 bn of overseas investment - 18% of the total for Chinese companies since 2015.
Tightening of debt provision is unlikely to affect state-backed transactions, such as CIC, the Chinese sovereign wealth fund, buying Logicor, Blackstone's European logistics platform, for €12.2 bn. But the same may not hold true for the wave of private Chinese capital, which has been spreading across Europe in the last few years.
For instance, Chinese insurer Anbang has done two major Dutch deals, in which incidentally Blackstone was the vendor. In May, Anbang acquired the Doubletree by Hilton hotel next to Amsterdam's central train station from Blackstone for a reported €350 mln.
Anbang's entry in the Dutch real estate market in October 2016 involved buying a portfolio of offices from Blackstone for an estimated €500 mln. Both transactions were carried out via Vivat, the former Reaal insurance business in the Netherlands which Anbang owns.
Also in the Netherlands, HNA teamed up with AXA IMRA to acquire the five-star Krasnapolsky on Amsterdam's Dam Square in June 2013 for €157 mln.
Fosun started investing in European real estate in 2015, with the acquisition of the Palazzo Broggi in Milan for €345 mln. Fosun Property Europe, working with partner Resolution Property, has been active in other markets since then. And, Fosun is set to finalise the acquisition of Paref, the €1.3 bn Paris-listed asset management REIT, later this year.
Business as usual?
Given the somewhat opaque nature of Chinese politics, it is not easy to separate fact from fiction. it seems a fact that the authorities are moving to rein in debt and bring more regulation to the country's insurers. Anything else is open to challenge.
Media reports in June suggested that Anbang's founder, Wu Xiaohui, had been detained for questioning and had disappeared from public view. His company issued a statement, saying only that Wu was 'unable to fulfil his role for personal reasons'. Senior executives continue to run the business, ‘which is operating as normal’, the statement added.
At the beginning of July, Fosun reacted impatiently to unsubstantiated rumours that its founder, Guo Guangchang, was also 'out of reach'. Threatening legal action against any media spreading 'malicious rumours and speculation', Fosun said Guo had been attending a business conference in Shaanxi province. The operations of the group remained normal, Fosun reiterated.
In a separate comment on the suggestion of a clamp down on debt, Fosun said it 'fully respects government regulations both in China and overseas'. But the conglomerate also noted that it has access to 'overseas funds and other stable financing channels', including a $1 bn fund in the US and a listed business in Hong Kong. HNA Group, for its part, emphasised that it had a 'disciplined approach' to identifying strategic acquisitions.
Dalian Wanda and Anbang have not commented on the matter.
London calling
Meanwhile, market watchers in London seems to be taking the view that Chinese capital will remain important in the City of London.
According to CBRE, Asian buyers were the largest buyers in H1 2017, having invested a total of £3.2 bn into London so far this year of which 90% – £2.9 bn – was accounted for by Hong Kong and Chinese investors.
Concerns about Dalian Wanda may have been assuaged in recent days when Wang Jianlin, chairman of Wanda Group, signed a strategic cooperation agreement between Wanda Commercial Properties, and developers Sunac China Holdings and R&F Properties. The deal will see Wanda transfer 77 hotels to R&F and 91% of the equity of 13 cultural tourism projects to SUNAC in a deal worth RMB 63.75 bn (€8.1 bn).
Chris Brett, CBRE head of international capital markets, stressed the importance of distinguishing mainland Chinese money and that from Hong Kong. ‘It tends to be put in one basket, which is incorrect,’ he said. Hong Kong families have sold historically held properties to the Chinese government and are moving this money offshore.
London leads the list of 12 international cities where they will invest. 'The biggest damage is being done by the property market, which is being greedy on pricing,' said Brett.
Image: Great Hall of the People, Beijing
