A decline in the renminbi against the US dollar and other currencies beginning last year with the Chinese government’s decision to allow greater flexibility in the exchange rate has been beneficial to the global real estate market, real estate services and analysis firm Jones Lang Lasalle (JLL) said in a report last week.
The move to allow the renminbi to depreciate – it has fallen 4.88 percent against the US dollar over the last year – has “intensified the appetite among mainland Chinese investors to acquire overseas properties, as well as stoking interest among Chinese insurance and other financial companies in holding real estate assets instead of cash.
Hong Kong and the United States have been the preferred destinations for Chinese property investors, the JLL report said. Property in the US has been made even more attractive as the dollar has appreciated in value at the same time the renminbi has been declining, the report added.
One of the biggest property deals in Hong Kong was the sale of both towers of developer Wheelock and Co.’s One Harbourgate complex in Kowloon to mainland investors, JLL said. Insurance giant China Life acquiring the west tower for HK$5.86 billion in November, while Shenzhen billionaire Chen Hongtian’s Cheung Kei Holdings picked up the east tower for HK$4.5 billion.
“In the last year, Chinese companies have invested more than RMB 28 billion into Hong Kong properties,” said Oscar Chan from JLL’s China Capital Markets team. “This hunger for Hong Kong real estate shows not only the growing international footprint of many mainland companies, but also the growing recognition of the value of holding properties valued in different currencies.”
New York has also been a major target for Chinese investors, with sovereign wealth fund CIC investing $700 million into New York Plaza in Manhattan in May, and China Life partnering with US developer RXR to buy a New York office tower for $1.65 billion that same month.
“As Chinese investors become more experienced in cross-border deals, Chinese institutions have played a part in some of this year’s largest transactions in the world’s biggest real estate market,” said Darren Xia, head of JLL’s International Capital Group for China. “Buying foreign currency-denominated assets helps China’s biggest investors to diversify their portfolios,” he added.
The real estate investment activity has not been limited to overseas property. “Besides acquiring overseas assets, China’s institutional investors have also been shopping for more real estate domestically, as property values continue to climb in the mainland’s key commercial hubs,” said Johnny Shao, head of Capital Markets in East China for JLL.
Developer SOHO China last month sold SOHO Century Plaza in Shanghai’s Pudong district to Guohua Life Insurance for RMB 3.2 billion, just five years after acquiring the project for RMB 1.89 billion.
JLL pointed out that the insurance business is rapidly growing in China, with premium revenue for the insurance industry nearly doubling over the last five years to RMB 2.4 trillion in 2015, from just RMB 1.3 trillion in 2010.
JLL also said that some analysts anticipate that the People’s Bank of China may allow the renminbi to depreciate as much as a further three percent this year, which should encourage even more property investment.