RCA Insights

Focus Shines on China Overseas Deals Again: Here Is the CRE Picture

By on May 16th, 2017

With media reports of tumbling Chinese overseas M&A activity and attention on this week’s “Belt and Road Initiative” forum in Beijing, the focus for many real estate players is, once again, on China’s capital controls. We have learned that new rules imposed on Chinese capital export have reined in overall M&A outbound activity, but was real estate investment activity thwarted in the same way?

The simple answer is no. According to a Bloomberg report total M&A deals by Chinese investors tumbled 67% during the first four months of 2017. There is no evidence of such a standstill for commercial real estate investors. Chinese cross-border CRE volume dropped 19% YOY in Q1’17 to reach $5.8b. Additionally, there are 14 deals in contract worth $4.4b and these are likely to close in the coming months.

1705 China main v3-01

In recent months some new investment trends by Chinese investors have emerged. For instance, Central and Eastern Europe and Southeast Asia saw sharp increases in Chinese cross-border investments, while Australia and the U.S. recorded the keenest drops. (Hong Kong remained the most popular destination for mainland Chinese investors.)

From a long-term perspective, it is hard to believe that the China capital outflows into global real estate would halt. Indeed, in the context of the China’s Belt and Road plan (with dozens of countries involved and a projected $1 trillion expenditure into infrastructure and real estate) our argument would be rather the opposite.

While the risk of a brake on real estate investments by Chinese investors remains, this activity has been relatively unscathed, to date, by the capital regulations.

If you are a current RCA subscriber log into your account to download the inaugural US Cross-Border Investment Compendium for a comprehensive picture on capital  flows into the U.S. from China and across the globe. For more on capital flows in the Asia Pacific region, download the Q1’17 edition of  Asia Pacific Capital Trends