Overseas Commercial Buyers Take New Approach

China commercial property

Chinese developers and property buyers are still seeking investment opportunities in Australia despite new capital restrictions, albeit with a different approach.

According to a survey from Juwai.com, China's leading online property portal and commercialview.com.au partner, merely 25 percent of Chinese buyers consider money transfers as their biggest challenge when investing abroad.

Rather, they are more concerned with finding out how to navigate legal systems overseas, as well as property selection. This corroborates another report from JLL stating that Australia can still count on an "increasing buyer pool of high-income Chinese investors".

Chinese developers will now expand into Australia with a large "marquee" project to quickly shore up market share, rather than slowly building a pipeline wih smaller projects, according to JLL's The Future of Chinese Residential Developers in Australia report.

"While the residential cycle in Australia is quite mature, there are sufficient opportunities available which are desirable to Chinese developers coming from a more volatile market," the report said.

"As the next wave will likely consist of developers who differ from typical operators in the Australian market, the industry could face a level of disruption, placing pressure on local developers to retain their market share.

"Using a marquee strategy requires a long-term investment into a market. The strategy requires the developer to adopt an aggressive pricing strategy for acquiring a landmark site which comes with the risk of lower than benchmark returns," the report added.

Citing examples such as China Vanke and Wanda, the JLL report explained that the next wave of Chinese residential developers coming into the Australian apartment market are likely to have more capital and hail from China's tier 1 cities.

China Vanke, one of China's mega developers, has yet to make a move on Australia, but in San Francisco it has targeted large flagship projects such as the 656-unit "Lumina" apartments with a local joint venture partner. Vanke also focused on areas with large existing Chinese communities.

Dalian Wanda launched into Australia with great fanfare with projects in Circular Quay, Sydney CBD and the Gold Coast.

"The effects on local developers of the marquee expansion approach are two-fold. Chinese developers seeking marquee sites are likely to be more competitive than local developers in their underwriting assumptions in order to be the successful buyer," the report explained.

"Potential changes in market conditions may lead to divestment of marquee sites which creates buying opportunities."

While capital restrictions have increased in China, the JLL report said Chinese developers in Australia could still count on "an increasing buyer pool of high-income Chinese investors", which is forecast to more than double over the next decade.

Chinese online property portal Juwai's latest survey of Chinese buyers showed that only 25 per cent of buyers consider money transfers as their biggest challenge, and were instead more concerned with "navigating legal systems" and property selection.