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.
When asked why they were investing in Australia - here were two core reasons:
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.