Who is Buying Commercial Property Abroad

| Sunday, October 26th, 2014

Commercial property abroad

Overseas commercial property ownership, despite frequently being subject to restrictions and even additional taxes, is one of the largest drivers of overseas money transfer. Driven by Asia, particularly China as capital controls on selling the renminbi are slowly loosened, large-size global commercial property investment touched US$1.1trn in 2013, the highest level since 2007. International institutional real estate investing is heavily concentrated within developed economies – notably the US, UK, and Germany, followed by Japan, France, Australia and China – whose currencies dominate the foreign exchange and international money transfer markets. According to the latest quarterly survey from property consultant JLL, not only have volumes of global commercial real estate investment grown by 28% year on year to US$297bn in the first half of 2014, but the largest markets have grown faster than the global average. These seven markets accounted for 58% of global investment activity in the first half of 2013, a figure that rose to 77% of the total in the latest period, driven by cross-border flows.

London, New York, Tokyo and Paris are the most popular destinations for real estate investment, together received US$58.9bn in new inflows in the first half of 2014, nearly 20% of the total. London remain the dominant destination of foreign investment inflows, with about half the US$16.6bn invested there coming from abroad. In Paris, too, around half of all property investment originates overseas, but the total is a third less than London. New York saw some US$16.4bn in real estate investment in the period, but barely more than a quarter of this came from overseas.

Of the top ten cities worldwide, however, only London and New York witnessed a fall in international inflows compared to the same period in 2013, as local markets became more expensive and investors sought to broaden the geographical portfolios. The volume of international investment in Paris doubled, while in Sydney it increased eight-fold to around US$3.2bn, over 55% of the total. In Tokyo, international investment rose by some 320% to just under US$3bn (20% of the total), in San Francisco by around 550% to a little over US$2.5bn (around 50%), and doubled in Beijing to US1.7bn. Provisional data for the third quarter suggest that Asia – namely China, Taiwan, Japan and South Korea – has been the key driver of international investment in Europe.

Total global cross-border flows are up by just over a third in the first half of the year, with improving outflows from the UK, Germany and France more than making up for a slowdown in outflows from China and the Middle East. The US remains not only the favourite destination for investors from Europe, but also the largest source of international property investment flows, with about US$8bn leaving the country. Germany is the second largest source of international investment in property, with just under US$7bn in the first six months of the year, double the same period in 2013.

While property investment – whether domestic or international – is principally driven by expected returns, economic prospects and the availability of capital, institutional and legal barriers are a key obstacle to international real estate investment flows. China is already a growing source of international investment flows and demand in general for overseas money transfer products. With the continued, if slow, loosening of capital controls – since early October, for example, the Chinese Ministry of Commerce has lowered its criteria for which it will require Chinese companies to seek approval for overseas investments – renminbi flows look set to grow further, supporting the global real estate market and demand for foreign currency.

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