Chinese property investors shunned the poorly performing domestic market to invest over US$10 billion in overseas property in 2014, according to CBRE Group's latest report.
The increase has been driven by new sources of funding, with Chinese insurers being the most active buyers. Investment by Chinese insurers was up 100% year-on-year in 2014, a response to guidance from the Chinese State Council to look for more investment opportunities outside the country, and the lifting of the government cap on foreign investments requiring no regulatory approval to US$1 billion.
China's domestic property market has been enduring a torrid time, with prices continuing to deflate at a record pace. Data from China's National Bureau of Statistics indicates that new house prices fell by an average of 5.1 percent in January, with falls in 64 of the 70 cities tracked.
The falls at home are the result of a slowing economy, an oversupply of property - particularly in China's mid-sized cities - and a switch towards investment overseas and the equity markets. Although the impact is most keenly felt China's second and third-tier cities, prices in Beijing and Shanghai fell 3.2 percent and 4.2 percent respectively year-on-year.
This is in sharp contrast to the heavy Chinese investment in property in the UK, US and Australia, where large stakes have been snapped up in prestigious developments, including insurer China Life purchasing a 70% stake in the 10 Upper Bank Street office building in London's Canary Wharf. Elsewhere, Angbang Insurance Group has purchased the Waldorf Astoria in New York and Sunshine Insurance Group has acquired the Sheraton on the Park in Sydney.
By making these significant purchases, Chinese insurers are hedging their bets against the turmoil of their domestic market, seeing these locations as being low risk and with secure, healthy rates of return.
The trend for Chinese finance organisations and high-net-worth individuals investing overseas is likely to continue, say Tospur Real Estate Consulting Co. The company predicts that the overseas property owned by China's high-net-worth individuals to grow by 300 billion yuan (US$48 billion) a year and reach 7.44 trillion yuan (US$119 billion) in 2020.
As the demand for property increases, so too does the need for real estate advice tailored to Chinese buyers. This month Bloomberg report that many of the Chinese nationals are being stung by overinflated property in Portugal, seduced by the promise of a golden visa, but acting without sufficient market knowledge.
The Portuguese government has vowed to crack down on bad practice in the industry to protect inward investment, but as word spreads agents are likely to have to work harder to win the trust of Chinese investors.
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