The logistics sector and associated real estate could be the biggest beneficiary of Chinese investment abroad after China’s central government announced strict controls on outbound capital this month.
The State Council guidance issued on August 18 was designed to curb “irrational” purchases of real estate and entertainment assets while steering investment into the $1 trillion One Belt One Road infrastructure initiative.
Three categories of outbound investment have been established by the guidance: encouraged, limited and prohibited.
The logistics sector has been included in the “encouraged” category and can be expected to receive “massive investor interest” as a result, according to Cushman Wakefield’s China research team.
“Now with the government’s express backing, this should create significant interest in investment into logistics portfolios and development of new facilities,” they wrote this week.
“We anticipate there will be an uptick in such overseas real estate investment activity from Chinese buyers on the back of this.
“This may include acquisitions of businesses where the core business is not real estate development but where their balance sheet holds a significant portfolio of owned logistics properties.”
Underscoring that point, two months ago China Investment Corporation sealed a deal worth close to $25 billion to buy out European warehouse firm Logicor controlled by Blackstone.
And just this week, CIC, a sovereign wealth fund that controls more than $1 trillion in investments, was tipped by Street Talk as a potential candidate to take a large stake in Lendlease’s retirement villages business.
On the Cushman Wakefield view from China, the new rules mean more caution for outbound investment in the short-term, especially ahead of China’s 19th Party Congress later this year.
Further ahead though, the guidance should lead to more diligent and prudent investment abroad.
“Nevertheless, overseas property transactions are now likely to close with less urgency than before,” they wrote.
While investment in real estate and hotels has been placed in the “limited” category, China’s major real estate developers will “likely remain active” in residential development projects in stable international markets, the analysts wrote.
Just before the new policy became official, China’s Wanda Group sold down large stakes in two Australian projects – albeit to a company controlled by the group’s founder, Wang Jianlin – in a move widely viewed as influenced by Beijing’s brake on capital flight.
Cushman Wakefield’s local research chief Tony Crabb was also sanguine about the new Chinese policy, noting that Australia too was moving to crimp offshore investor through increased foreign taxes on residential buyers.
“Perhaps some of the more speculative aspects of capital will be reined in,” Mr Crabb told The Australian Financial Review.
“We think the capital will keep coming, there will just be ebbs and flows. Some of those ebbs and flows are Chinese-induced and some will be induced by us.”
by Nick Lenaghan