Investors shifting focus in global realty purchases

Chinese investors have been moving from core office and residential developments into leisure and industrial assets when they seek opportunities in overseas realty markets, a study said.

Knight Frank, a realty services provider, said a number of recent investment hot spots have shown a discount in prime residential prices compared with key Chinese gateway cities such as Beijing and Shanghai.

"In Los Angeles and Miami, prime apartment prices are both about 25 percent lower than Shanghai, drawing significant interest from high net worth individuals in China," said Dominic Ong, senior director of Asian markets at Knight Frank Australia.

In terms of the attractiveness of investment, using the benchmarks of prime office yields and the spread over the 10-year bond yield, non-core cities such as Frankfurt in Germany, Houston in the United States and Brisbane in Australia may rank higher than the hot spots such as London and New York, according to Knight Frank data.

"Many provincial capitals and key cities in Australia, the United States and the United Kingdom have now presented a better yield spread, which is the gap between the yield return from property investment over bond returns, than the gateway cities of London, New York, Sydney and Melbourne," said David Ji, director and head of research for China at Knight Frank.

The desire to diversify risk into various markets, build brand internationally and help manage future occupation costs are also pushing institutional investors to increase outward real estate investment, the report said.

Chinese outward real estate investment skyrocketed from $600 million in 2009 to about $15 billion last year, Knight Frank said. So far, this investment has been focused in gateway cities in Australia, the US and the UK, the report said.

In 2014, Australia recorded the strongest growth in inbound real estate investment from China, with a rise of more than 60 percent year-on-year.

Market observers said that Chinese investors, whether they are institutions such as banks and insurance firms or super-rich individuals, have been diversifying in many locations. Small and medium-sized State-owned developers and private developers are also expanding overseas and look into more diversified local markets.

Chinese investors are shifting toward sustainable long-term returns and taking more factors into consideration than just price appreciation, market analysts said.

"Many Chinese individual investors have been looking into opportunities in eurozone countries including Portugal and Spain amid the renminbi's appreciation against the euro," said Liu Feng, senior vice-president of CreditEase, a wealth management and credit management services firm.

Exchange rates, interest rates, yields and rental growth are all taken into consideration by Chinese investors when making a decision about where to buy overseas, said analysts.

Researchers said that although China's outward investment has surged, buyers from China are sometimes facing fierce competition from buyers from other countries and regions.

In London, Chinese buyers account for about 20 percent of the properties sold to foreign buyers, but clients from the Middle East are taking a larger share, according to Yolande Barnes, a director at Savills World Research.

Paul Guest, head of research and strategy for the Asia-Pacific region with LaSalle Investment Management, said Chinese investors are also looking at opportunities in Asian cities including Tokyo, Singapore and Seoul.