Chinese investment in overseas property is set to reach a new high in 2014 as the economic powerhouse goes from strength to strength.

Chinese investment in overseas property is set to reach a new high in 2014 as the economic powerhouse goes from strength to strength.

It is estimated investment will come in at $15 billion for this year, with Australia being the main investment destination, said estate agent KnightFrank.

So far the majority of this investment has been focused in gateway cities of Australia, the US and the UK. In 2014 Australia has received an inbound real estate investment increase from China at over 60 per cent year on year. But Chinese high net worth investors are also looking to new destinations offering discounts on prime property such as Miami in the US and Australia’s Gold Coast. 

As recounted regularly in these pages, Asian investors have been buyers of trophy assets and luxury developments in cities such as London, highlighting the purchasing power of the expanding Chinese middle class.

“Investors today are shifting their focus towards sustainable returns in the long term.  The key factors for Chinese investors are the policy push from the Chinese government to diversify into other countries; a softening domestic market; and the pull from higher returns achievable in overseas markets," said Neil Brookes, head of capital markets for Asia Pacific at Knight Frank. Australia, the US and the UK are the top three markets most Chinese investors are looking at. We saw five times as much capital outflow from China into these three markets in 2013 alone compared to the previous year. We expect the transaction volumes from Chinese investors into these three markets this year will match or even exceed that of last year,” he added.

The main drivers behind the overseas expansion are the softening of Chinese market conditions and the growing power of the country's sovereign wealth funds.

The Chinese home market is currently suffering from low yields, a lack of investable stock and depressed residential markets. And with government policy encouraging firms to expand overseas, Knight Frank continues to see active investment activities by Chinese institutional investors, banks and developers. However the property company also warns that due to the policy-driven nature of the Chinese market there remains a risk that China’s outward investment could be impacted by policy adjustments.

Meanwhile Chinese sovereign wealth funds and large developers are investing in trophy assets and banks are acquiring property for owner occupation.Knight Franks also sees new investors in the shape of ultra-high net worth Individuals, small- to mid-cap state-owned enterprises and private developers who are increasingly evaluating their overseas strategy and exploring overseas growth.

“Many provincial capitals and key cities in Australia, the US and the UK have now presented a better yield spread (i.e. the gap between yield return from property investment over bond returns) than gateway cities of London, New York, Sydney and Melbourne,” said David Ji, Director, head of research & consultancy of Greater China at Knight Frank.

And future spending is likely to come from the Chinese insurance sector. Only four out of the top 20 Chinese insurance companies have made significant offshores investment, while 40 per cent of them are considering overseas expansion, the report adds.

“From our knowledge on overseas investment activities, only four out of the top 20 Chinese insurance companies have made significant offshores investment, while 40 per cent of them are considering overseas expansion. Chinese developers are more aggressive with half of the top 20 players having already made offshores investment. If we look into small to mid-cap investors, the potential pool of investment will be significant,” added Ji.