Wealthy Chinese property hunters spent $24 billion on Australian property in the past seven years, according to The New York Times*.
Despite booming Chinese investment in the residential property market, a significant proportion of this was investments in commercial properties – shops, offices, hotels, shopping centres and development sites.
At the end of 2013, I visited Shanghai, Guanzhou, Fushang and some other cities in the GuangDong province in China.
A significant proportion of this was investments in commercial properties.
I spoke to a number of business associates and members of the Real Estate Association of GuangDong Province and asked the question: “why you are interested in Australian commercial real estate?”
Many reasons were offered. Here are two of them:
1. In China, land belongs to the State.
All properties are lease-held, which means they have a lease term of 70 years which is obtained via a land grant between the land user and government-run land administration department.
After the lease expires, there is no certainty about what will happen to the land. Most of the time, it depends on the sitting government's policies.
One common scenario is that land grants are renewed, but at very high rates. Another scenario is that the government may take the land back with no compensation to the land user.
Not having any control once the lease expires creates huge doubt. If you are looking for a stable investment, that you can hand down to your children, these circumstances are less than ideal.
2. There is minimal return on commercial properties in China.
In big cities like Shanghai, Beijing and Canton, all of which have huge populations, prices are high and property yields are low. Shanghai has some of the most expensive commercial properties in the world. Some areas in Shanghai and Beijing are said to be more expensive than in Sydney, with retail property retuning as low as a 3% yield.
As for cities not on this scale, where the populations are smaller and there is an oversupply, trying to rent out a property as a landlord is very hard.
In China it does not matter what grade of commercial real estate you invest in; it is difficult to maintain a return through real estate. There are also many wealthy Chinese who do not have confidence in the Chinese sharemarket, especially in China's current economic slowdown. They do not have the channels to invest domestically, so they look overseas to make investments.
Australia is an attractive investment
In contrast, most commercial properties in Australia are freehold, which means buyers can sit on them forever if they have the financial capacity to do so.
Since it is the opposite in China, Chinese investors find the Australian market very attractive to buy land. It's viewed as a long-term investment, not just for one generation but also for several generations to come.
In many years dealing with Chinese people, both in Australia and China, I've seen how commercially minded they are.
There are more and more small businesses opening up and being operated by Chinese people in Australia. Mortgage brokers, migration/educational agents, accounting firms and small law firms have acquired numerous office spaces in the Sydney CBD.
There are more and more small businesses opening up and being operated by Chinese people in Australia
Chinese people also occupy of a lot of retail shops, such as cafés, restaurants, and grocery shops. If they have the chance, these small business owners will buy the properties, with many already owning them.
Some Chinese business people believe their commercial property is a second business to them. This ensures the security that even if their first business is not profitable, the second business (in commercial real estate) will give them long-term prosperity, which also means capital gains.
What are Chinese buyers looking for?
With the trend to buy both residential and commercial property in Australia, Chinese buyers are becoming more astute regarding local property, various localities and varieties.
I've found they like free-standing buildings with the potential of redevelopment. Low return on investment, or even if the building is not leased, does not bother them too much.
Chinese buyers like free-standing buildings with the potential of redevelopment.
One of the Chinese owners I deal with, who owns a building in Sydney's CBD, keeps the building empty. He told me he will only consider leasing it if the tenant meets his requirements. The building in itself is an investment to him: having tenants is not a necessity.
From a Chinese investor's perspective, Australia is a country where successful residential and commercial investments can be made.
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