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Outbound Real Estate Investment Drops Over 50% In The Third Quarter

Summary

Chinese outbound foreign investment in the real estate sector fell by 51% in the third quarter to its lowest level since the end of 2013.

Chinese investors are shifting from office building assets to land development projects.

Any future changes in outbound foreign investment will depend upon policy adjustments on the part of Beijing, given strong demand amongst domestic investors.

China's outbound foreign investment in the real estate sector has plunged by over half in the third quarter of 2017 according to a new report from property services firm Debenham Thouard Zadelhoff

Figures from the DTZ report indicate that Chinese outbound real estate investment saw a year-on-year plunge of 51% in the third quarter to hit USD$2.5 billion, for the lowest quarterly investment total since the fourth quarter of 2013.

In terms of investment categories, land development maintained the strong growth momentum of the two preceding quarters, comprising 58% of total investment for the third quarter.

The total amount of investment in land development projects this year now stands at $8.4 billion, for an increase of 234% compared to the same period in 2016.

In sharp contrast Chinese outbound investment in office building assets for the third quarter was only $710 million, for an on quarter decline of 83%.

James Shepherd, Managing Director, Research for Greater China, DTZ, said that land development was rapidly becoming the most favoured category for Chinese outbound real estate investment, rising to over half of investment this year as compared to just 10% of total investment last year.

Across the same period office building investment has fallen from a high of 71% of total investment to less than 30%.

Benefiting from low land costs as well as diverse assets, Australia has emerged as the preferred real estate investment destination for Chinese capital in the third quarter, with the investment sum for the third quarter rising to $780 million, of which land development accounted for 63%.

The UK and Hong Kong were the second and third most popular real estate investment destinations for China, followed by Canada in fourth place and the United States in fifth position.

The DTZ report said that the future of Chinese outbound foreign investment would be primarily determined by policy adjustments on the part of Beijing, whose heavy curbs on capital outflows were the primary reason for the current plunge in overseas real estate acquisition.

Amidst uncertainty surrounding policy, many investors are adopting a "wait and see" approach, looking out for potential investment opportunities as well as increasing their understanding of overseas markets.

The report points out that despite the recent plunge in Chinese outbound real estate investment demand remains very strong amongst domestic investors, and that any moderation of the current heavy restrictions on capital outflows will result in a rapid recovery of investment levels.