Chinese capital is dominating Asian outbound real estate investment, with New York overtaking London as the top city destination for Asian investors overall.
Asian investment is off to a strong start in 2016 reaching $27.0 billion in the first half of the year. Chinese groups were particularly lively, accounting for around 60% of total outbound investment, led by insurance firms.
Concerns over the market slowdown in their home market have led Chinese investors to seek a safer investment environment which offer higher potential returns. Chinese investors acquired $16.1 billion in overseas real estate in H1 2016, more than double the amount in the same period last year. Investors from China are expected to remain active overseas in the second half of the year, but growth is likely to be at a more sustainable rate rather than a quick acceleration.
The U.S. continued to attract the largest share of Asian outbound investment, while New York overtook London as the top city destination for Asian capital. Some of the “pull” factors of the U.S. for Asian investors include the more attractive yield and pricing environment. The strong U.S. economy and property fundamentals add to the interest and economic security of investment. Long-term market characteristics, such as the political stability of the U.S., the generally positive business environment, low and fairly predictable inflationary climate and other factors add to the appeal.
Additionally, the U.S. provides Asian investors with portfolio diversification benefits. Indeed, more Asian investors are purchasing portfolios globally–five of the top ten Asian outbound transactions in H1 2016 were portfolio deals.
The first half of the year also saw strong cross-border investment within Asia as investors sought to diversify domestic market risks and achieve higher returns. Office investment continues to be an easily understood and managed asset class for most investors; however, as cap rates continue to compress globally, investors are starting to seek out higher yielding opportunities in secondary locations or ‘alternative’ real estate sectors, such as student housing. Hospitality assets are also receiving stronger interest.