This article is from the Australian Property Journal archive
ONLY two completed transactions of commercial real estate investment by corporates from China in 2022 and there are major hurdles preventing a return to the halcyon years when Chinese investment dominated, according to a University of Sydney Business School and KPMG study.
The annual report, Demystifying Chinese Investment in Australia, showed Chinese investment in commercial real estate continued to drop from $208 million in 2021 to just $14 million in 2022.
“Obtaining financing and regulatory approvals from China for overseas real estate investment remains difficult,” said the report, authored by Hans Hendrischke and Dr Wei Li.
“Relatively lower investment returns from the Australian market given increasing costs of land, financing and construction (during and after COVID) is also slowing down investment in commercial real estate.”
While commercial real estate investment slowed down, Chinese investment in Australia overall increased to $2.1 billion in 2022, marking the first rise in six years but well below established highs.
China continued to be the largest source of foreign Australian residential real estate investment proposals by number and value in the December quarter, according to the Foreign Investment Review Board, at $600 million across 440 proposals.
According to the University of Sydney Business School and KPMG study, total Chinese investment into Australia was relatively stable at around US$10 billion a year between 2011 to 2017, before falling consistently and considerably year-on-year to a low of US$0.6 billion in 2021. The 170% rise in 2022 comprised of 11 completed transactions and was dominated by one large iron ore deal of over $1 billion, resulting from a long-established partnership between Rio Tinto and Baowu Steel Group that will see the pair develop the $2 billion Western Range project in Western Australia.
Mining accounted for 86% of total investment inflows, including projects in iron ore, gold and lithium, while renewable energy accounted for 12%.
The remaining 2% was split between commercial real estate and technology investment.
Hendrischke, Professor of Chinese business and management at the University of Sydney Business School, said Chinese investment in Australia was consistent with global trends.
“China’s official statistics for outward direct investment in 2022 show a 2.8% lift, so Australia is benefiting amid a gradual recovery from the lows of the years dominated by COVID-19.
“We expect to see that continue to increase with the lifting of China’s COVID-zero policy, but there are several factors preventing a return to the high-volume years.
“While the Australian Government is focused on repairing the damaged relationship with China, tougher investment scrutiny and Beijing’s concern about capital flight remain significant hurdles.”
Dr Wei Li said East Asia had the biggest inflow of Chinese investment last year, with Indonesia second only to Saudi Arabia in investment received.
China has also shifted major investment projects toward countries in the Middle East, Latin America and Asia, in line with its Belt and Road Initiative.
