China overtakes Australia as top destination in Asia-Pacific for foreign commercial property investors, CBRE survey finds

China has overtaken Australia as the top destination in Asia-Pacific for cross-border investments in commercial property for the first time, with Shanghai the preferred city for overseas buyers, according to a survey by CBRE.

About a quarter, or 25.8 per cent, of the 348 global real estate investors polled between November and January said they were interested in China, up 3.7 percentage points from a year ago.

The office segment remained the most popular sector, with more than a third of respondents expressing an interest.

China is 4.7 percentage points ahead of Australia, last year's leader, which ranked second in the study. And it surged further ahead of third-placed Japan, opening up a 7.5 percentage point lead having narrowly overtaken it last year.

"China's sustained mid- to high-speed economic growth, the increasing importance of China asset allocation in investment portfolios, and a more mature investment market are key factors fuelling the robust influx of foreign capital into China's commercial real estate," said Alan Li, president of CBRE China. "We believe China's en-bloc market activity will continue to be buoyant this year."

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En-bloc refers to transactions where a whole building changes hands.

In the first quarter of this year, foreign investors accounted for about half of the 53 billion yuan (US$7.88 billion) of China's en-bloc deal volume, according to CBRE.

For instance, Brookfield Asset Management bought the mixed-use Greenland Huangpu Centre in Shanghai from Greenland Hong Kong Holdings for about 10.6 billion yuan this month.

The moderation would come despite fiscal and monetary policy support to increase liquidity and maintain stable funding supply in the banking system, Moody's said.

Exactly a third of Chinese investors identified potential economic shocks as the biggest threat to their real estate investment, up 3 percentage points from last year.

The expectation for capital value growth also weakened by 2 percentage points compared to last year.

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The survey found that eight in 10 Chinese developers would be willing to sell this year, up 7 percentage points from last year.

"Some developers' corporate bonds are going to come due and need to be paid back between this year and 2023. Thus, selling some of their properties and keeping the cash to mitigate potential financial risk will be their key strategy," said Sam Xie, head of research at CBRE China.

The office segment retained its status as the most popular sector, gaining the favour of 36 per cent of respondents, up 8 percentage points from last year. It is widely regarded as a safer asset in a late-cycle market because it is easier to manage and provides higher liquidity.

Enthusiasm for real estate debt almost doubled from 16 per cent to 31 per cent this year, mainly because of the high debt-to-asset ratio of China-listed property developers and record debt maturities starting this year.

Investors also showed a considerably stronger desire to invest in sectors that benefit from mid- and long-term structural trends, such as modern logistics, data centres and senior housing, reflecting the growing focus on building a portfolio that is better positioned to weather the real estate cycle.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.