A renewed preference for Australian assets from Chinese commercial property investors amid falling cross-border enquiry serves to emphasise the English-speaking country's strong outlook for yields and capital returns, as well as its close economic ties to Chinese industry and long-term outlook for economic and population growth, Juwai IQI says.

New research from the company has revealed Australia replaced the US as the top market for enquiry from Chinese outbound investors in the first half of 2020, with Canada, Japan, and Vietnam also high up on the list.

Juwai IQI Executive Chairman Georg Chmiel said while the trend was "remarkable" given the size difference between the two countries, it was important to remember that cross-border commercial investment from China was declining.

At a glance: 

• Chinese cross-border buying enquiries on commercial property fell 27.1 per cent in Q2 from one year earlier.
• Both sellers and buyers postponing deals until the trends become clearer.
• The top destinations for Chinese cross-border commercial property investors in the first half were Australia, Canada, the United States, Japan, and Vietnam.
• The preference for Australian assets reveals strong outlook for yields and capital returns, its close economic ties to Chinese industry, and its long-term outlook for economic and population growth.

"Taking a step back to look at the trend, Chinese cross-border commercial property investment has been on a long glide downward since 2016," he said.

"The combination of capital controls and a preference for domestic investment has seen Chinese asset buyers often replaced by the Japanese, Singaporeans, and others."

Positive long-term outlook despite short-term downturn

According to Juwai IQI, Chinese cross-border buying enquiries on commercial property fell 27.1 per cent in Q2 from one year earlier, after climbing just 3.9 per cent in Q1.

Mr Chmiel said the drop could be attributed to an uncertain investment climate, negative global economic growth, and difficulties with travel and due diligence 

"Many investors believe that, if they hold onto their capital, they will be able to make cross-border investments on better terms later this year or in 2021," he said.

Juwai IQI Executive Chairman Georg Chmiel. Source: Juwai IQI

"We are only just starting to understand how much damage has been done to balance sheets and how far property values have fallen as a result of the COVID-19 pandemic."

He added the long-term outlook for commercial real estate was good, with the sector still offering a better return than most other asset classes, even at lower yields.

"As more information becomes available, investors expect distressed assets to come onto the market, including A-grade property that can be repositioned with excellent long-term prospects," he said.

"We see both sellers and buyers postponing deals until the trends become clearer."

Possible Biden Boost

Mr Chmiel said November, the month of the US election, could be "a hinge" on which investment trends turn. 

“Many commercial investors are waiting out the current Sino-American tensions to see how the outcome will affect investment prospects," he said.

"If President Trump is reelected, that may negatively affect investment levels.

"A victory by the Democratic candidate could lead to a 'Biden Boost.’

"Reassured investors may go ahead with transactions in the USA that are currently on hold."

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