chinese outbound real estate investment: new waves, … · 2016-02-17 · outbound investment...
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CHINESE OUTBOUND REAL ESTATE INVESTMENT:
New waves, New Destinations Presented by
Paul Hart
Executive Director
Greater China
David Ji
Director, Head of Research &
Consultancy, Greater China
2
Chinese outbound Real estate
investment
Two key questions Given the market uncertainties, will there be a
reduction of investment from China?
What factors bring investors to the market?
To Answer These questions We will look at… Domestic factors that drives outbound capital
Global movement of Chinese capital – Who, where and what?
Future trends and conclusion
How changes
in the Chinese
market drive
outbound
capital
4
slowdown in the growth of
China’s GDP & Household income
Source: CEIC, IMF, Knight Frank Research
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F 2017F
GDP Income
Household growth slowed
but stabilised at around
8%-10%
GDP growth remains positive
and stabilised at around
6%-7%
5
0
50
100
150
200
250
300
350
400
450
500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Million sqm
Between 2005 to 2015, residential inventory
increased from 86 million sqm to 452 million
sqm, an annual compound growth of
18%
Source: National Bureau of Statistics, Knight Frank Research
T-1 cities: 34 million sqm
Chinese residential inventory
glut
7.5%
6
Home price divergence between
First & second-tier cities
Source: National Bureau of Statistics, Knight Frank Research
80
90
100
110
120
130
140
150
160
170
180
2011 2012 2013 2014 2015
Beijing Shanghai Guangzhou Shenzhen
Tianjin Dalian Chengdu Wuhan
Index
(Jan 2011=100)
BJ
T2
SZ
SH
GZ
7
Policy drivers for outbound
investment
“Belt and Road” initiative,
Asian Infrastructure Investment Bank Chinese policies aimed at channelling investment abroad
US trade law Latest move to remove legislative restrictions on foreign pension funds investing in
US properties and REITs will raise interest.
Sino-British, Sino-Australian ties Capitalise on bilateral relationship improvement to drive investment
China’s 13th Five Year Plan Likely impact of changes in foreign-investment policies?
Who, Where &
What
9
Chinese outbound global real
estate investment
Source: RCA, Knight Frank Research
Note: Data as at end 2015
0.6
2.3
4.4 5.6
15.8 15.1
30
0
5
10
15
20
25
30
35
2009 2010 2011 2012 2013 2014 2015
US$ billion
Volume in 2015 almost double of 2014
Gateways Manhattan, London, Sydney
and Melbourne, takes more than
40% of total
10
Outbound investment status of
developers & Insurers
2014 2015
Developers 10 14
Insurance companies 4 6
Source: Knight Frank Research
Top 20 players who made offshore investments
2014 2015
Developers 3 2
Insurance companies 2 6
SWF, Banks, Funds 5 2
An analysis of the top 10 deals
Developers more active but
insurance companies are focused on
bigger deals
11
Top 10 Chinese outbound
investment deals in 2015
Date Purchaser Property Name Location Property Type Consideration
(US$ million)
Feb Anbang Insurance Waldorf Astoria Manhattan Hotel 1,950
Aug Anbang Insurance Heron Tower London Office 1,172
Jan China Investment Corp
(JV LaSalle Investment) Meguro Gajoen Tokyo Office 1,170
Jul Taiping Life Insurance 111 Murray Street Manhattan Dev site 820
Jan Greenland Group Tebrau Bay Waterfront City Malaysia Dev Site 683
May Bank of China 7 Bryant Park Manhattan Office 600
Jan Ping An Insurance Tower Place London Office 506
Oct
China Life Insurance
(JV Qatar Investment
Authority)
99 Bishopsgate London Office 420
May Anbang Insurance Merrill Lynch Financial
Center Manhattan Office 414
Jul Fosun International Ltd Palazzo Broggi Milan Office 384
Source: RCA
Note: Data as at end 2015
12
Chinese outbound investment
in gatewayS
Source: RCA, Knight Frank Research
Note: Data as at end 2015
0
1,000
2,000
3,000
4,000
5,000
6,000
2010 2011 2012 2013 2014 2015
London Manhattan Sydney & MelbourneUS$ million
13 Source: RCA, Knight Frank Research
Chinese investment heavily
focuses In gateways
52.3%
88.3% 90.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Manhattan London Sydney & Melbourne
14
Manhattan 52.3%
Los Angeles 2.8%
Chicago 2.2%
Seattle 1.9%
Dallas 1.7%
Houston 1.7%
Other cities 37.5%
Chinese investment in
the US in 2015
The majority of
US$5.78 billion Chinese capital flowed into Manhattan
Source: RCA, Knight Frank Research
Note: Data as at end 2015
15 Source: Knight Frank Research
Chinese purchases in US:
key transactions in 2015
16 Source: Knight Frank Capital Markets, RCA
Chinese purchases in London:
key transactions in 2015
17
20
40
60
80
100
120
140
Q2
200
7
Q3
200
7
Q4
200
7
Q1
200
8
Q2
200
8
Q3
200
8
Q4
200
8
Q1
200
9
Q2
200
9
Q3
200
9
Q4
200
9
Q1
201
0
Q2
201
0
Q3
201
0
Q4
201
0
Q1
201
1
Q2
201
1
Q3
201
1
Q4
201
1
Q1
201
2
Q2
201
2
Q3
201
2
Q4
201
2
Q1
201
3
Q2
201
3
Q3
201
3
Q4
201
3
Q1
201
4
Q2
201
4
Q3
201
4
Q4
201
4
Q1
201
5
Q2
201
5
Q3
201
5
Q4
201
5
GBP USD EUR SGD TWD RMB
Source: Knight Frank Research
£: 28%
increase
RMB: 19%
discount from
Q2 2007
price level
Commercial price index in the City of London
advantages enjoyed by Chinese
purchasers over others
18 Source: RCA, Knight Frank Research
Office 40%
Hotel 8%
Retail 14%
Dev site 36%
Industrial
2%
2014 2015
Office 42%
Hotel 18%
Retail 8%
Dev site 27%
Industrial 5%
Chinese outbound investment by
sector Globally
19 Source: NGKF, Knight Frank Research
New supply’s relative size to
total stock (2016-2019)
London
5.2% 12.6 million sq ft
Manhattan
4.7% 10.3 million sq ft
Sydney & Melbourne
10.9% 11.9 million sq ft
Hong Kong
market
21
Major deals completed by Chinese
Institutions in Hong Kong in 2015
Date Purchaser Property Name Property Type Consideration
(US$ million)
Nov Evergrande Group MassMutual Tower Office 1,612.8
Sep Shimao Property New Kowloon Inland Lot
No. 6542
Dev Site
(Residential) 905.8
Nov China Life Insurance One HarbourGate Office 755.1
Sep China Poly Group Tuen Mun Town Lot
No. 542 Castle Peak Road
Dev Site
(Residential) 223.2
May CITIC Pacific Sha Tin Town Lot
No. 605
Dev Site
(Residential) 189.5
Sep Centralcon Group 11 Au Pui Wan Street Dev Site
(Mixed) 144.5
Dec Chinalco Overseas
Holdings Limited Far East Finance Centre Office 48.0
Source: RCA
22 Source: HKSAR Rating and Valuation Department / Knight Frank Research
Why the office sector: supply &
demand 2009-2019
0
1
2
3
4
2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F
Grade-A office completion
(million sq ft)
Average annual completion between
2016-2019 is 1.75 million sq ft
Historical annual take up is around 1.9
million sq ft
23
67,000
6,000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Hong Kong developers Chinese developers
No of flats
It is estimated that Chinese developers will
provide around 6,000 flats, or around
8% of the total supply in the next
three years (2016-2018)
Chinese developers in Hong Kong
Source: Knight Frank Research
Future
trends and
Conclusion
25
Outbound investment status of
major Chinese Developers
In 2014, six of the top 10 developers invested off shore, by 2015, this rose to eight
Looking at the next 10 in the ranking six also invested in 2015
In 2014, four of the top 10 insurers invested off shore, by 2015, this rose to six
None of the smaller insurers invested offshore
Already made investment offshore
No investment offshore
Rank Insurance company
2014
Premium
income
(US$ billion)
Outbound
investment
status
(2014)
Outbound
investment
status
(2015)
1 China Life Insurance 58.2
2 PICC 51.9
3 Ping An Insurance 49.6
4 China Pacific Insurance 30.0
5 New China Life Insurance 17.2
6 China Taiping 12.3
7 Taikang Life 10.6
8 Anbang Insurance 9.1
9 Sunshine Insurance 6.1
10 Sino Life 5.7
Rank Developer
2014 Property
sales
(US$ billion)
Outbound
investment
status
(2014)
Outbound
investment
status
(2015)
1 Greenland Group 37.7
2 Vanke Group 33.7
3 Wanda Group 25.1
4 Poly Real Estate 21.4
5 Evergrande Group 20.6
6 Country Garden 20.2
7 China Overseas Land & Investment 17.6
8 Greentown China 12.4
9 Sunac China 11.2
10 Shimao Property 11.0
Source: Knight Frank Research, public sources
26
Insurers’ investment in developers
Gives Dual Exposure
Source: Knight Frank Research, public sources
China Life
Insurance*
Ping An
Insurance*
New China
Life
Insurance
Anbang
Insurance*
Sino Life
Insurance
Foresea Life
Insurance
Hexie Health
Insurance
China Vanke* 7.01% 24.26%
Greenland Group* 20.14%
Country Garden* 9.91%
Sino Ocean Land* 29.99% 29.98%
China Jinmao 9.50%
Gemdale
Corporation* 14.60% 27.63%
Financial Street
Holdings 13.35% 15.88%
Landsea Group* 9.90%
* The firm has also invested in overseas property markets
27
“Fourth wave” investors Look at
Regional hubs
“Fourth Wave” investors - a mixed group of investors consisting of lesser known
small- to mid-cap companies and developers, private equity funds and individuals,
who were increasingly active in overseas markets.
These “Fourth Wave” investors are after quality stock available in primary and
secondary locations, especially in the US and Australia.
For example:
Kuafu Properties, a New-York based developer backed by a Chinese private fund, acquired four US
properties within one year of entering the market, spending over US$500 million.
Landsea Group, a small specialized developer, teamed up with Miami-based homebuilder Lennar to develop
a condominium tower in Manhattan.
Wanxiang Group, an auto parts manufacturer, has invested in more than 60 US properties since 2010,
including office, retail, industrial, hotel and development sites.
Macrolink Group, an international trader engaged mining, chemicals and financial investment acquired
several plots in the Iskandar Development Region in Malaysia, where it plans to develop tourism-related
projects.
Nanshan Group, a private-owned Chinese conglomerate, acquired the Pullman hotel at Sydney Airport for
US$61 million.
Source: Knight Frank Research
28
Inbound property investment
for Shanghai
Source: RCA
Note: Excluding development site deals
0
1
2
3
4
5
6
7
2010 2011 2012 2013 2014 2015
Shanghai inbound investment volume US$ billion
29
Top 10 Shanghai Inbound deals
in 2015
Date Purchaser Seller Property Name Property Type Consideration
(US$ million)
Aug The Link REIT
Shui On Land Limited
JV Brookfield Property
Partners
Corporate Ave 1 & 2 Office 1,031
Dec Lee Kum Kee JV China
Vanke Shui On Land Limited Corporate Avenue 3 Office 891
Sep ARA Asset Management
Group CSI Properties Platinum Tower Office 448
Aug Yuexiu REIT Carlyle Group JV CLSA
Capital (Citic) Hongjia Tower Office 423
Dec ARA Asset Management
Group Gaopeng Shanghai RE BEA Finance Tower Office 422
Aug Blackstone LVMH JV Arnault family L'Avenue Office 403
Aug PAG JV Goldman Sachs Gaw Capital JV He
Xiaoqiong Ciro's Plaza Office 330
Jun Mapletree Commercial
Trust Morgan Stanley Sandhill Plaza Office 303
Jan AVIC Joy Holdings (HK)
Ltd
Franshion Properties JV
Shanghai International
Port Group Co Ltd
Shanghai Intl Shipping
Service Center (Bldg 17) Office 252
Oct Carlyle Group Yuchang Property Group Manpo International
Plaza Office 233
Source: RCA
Note: Excluding development site deals. Preliminary data as at December 2015.
30
Conclusion
Chinese outbound investment is expected to be strong in 2016, supported by a
growing need of diversification from the cooling domestic market.
Going forward, the US, given its market depth and diversity, will remain the most
important destination for Chinese investors. Large institutions will continue to target
major gateways where there is quality pipeline and strong rental and capital value
growth prospects. Meanwhile, small- to mid-cap (so-called “Fourth Wave”) investors
will seek opportunities in regional hubs.
Chinese insurance companies will remain as the key investor in the next few years.
They will also continue to take an interest in developers who have extensively
expanded overseas.
Open, business friendly, and with sufficient supply of quality commercial property,
Shanghai has become the focus for inbound investment into China.
In contrast to recent curb on outflow of individual funds, the Chinese government’s
various initiatives, such as “Belt and Road” and Asian Infrastructure Development
Bank, are going to encourage Chinese firms and their investment expand overseas.
31
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