Chinese investors look to South-East Asia for commercial property as political tensions, make US and Australia less appealing

South-East Asia’s commercial property markets are becoming more popular with mainland Chinese investors as political rifts and higher interest rates dampen the appeal of traditional favourites such as Australia and the US, according to a report by Juwai IQI.

Indonesia is now the main offshore destination of choice for Chinese investment in the sector, with Malaysia in third place and Thailand in fifth, according to the property technology company’s rankings based on enquiries from interested parties. In 2022, Indonesia and Malaysia were in fourth place and fifth place, respectively, while Thailand was not even in the top five.

By contrast, the US, which was the preferred investment destination last year, failed to make the top five at all, while Australia dropped to fourth place from second in 2022.

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“Investors consider South-East Asia an appealing destination because commercial ties between China and these countries are growing, while they are shrinking with the US,” the report said. “Their rapidly growing economies provide opportunities in developable land, tourism facilities, industrial parks and industrial and logistics facilities.”

The International Monetary Fund (IMF) forecast in April that the three South-east Asian economies will grow this year by between 3.4 per cent and 5 per cent.

Chinese investors are ‘avoiding markets where future political tensions might make things more difficult,’ says Juwai IQI’s CEO Kashif Ansari. Photo: Handout

Both the US and Australia are tipped to grow by a mere 1.6 per cent this year, the IMF said.

Interest rates in the US and Australia currently stand at 5.25 per cent and 4.10 per cent, respectively, while those of Indonesia, Malaysia and Thailand range between 2 per cent and 5.75 per cent.

The better growth prospects for the Southeast Asian countries give investors more incentive to put their money there, Juwai IQI said.

Chinese outbound investment is hobbled by Beijing’s strict capital controls, and this is giving “further advantage to Southeast Asian countries because investors find obtaining approval for projects in these destinations easier,” the report added.

Washington and Beijing’s relations have worsened in the last few years with disputes over trade, technology and even territorial claims in Asia heightening tensions. Ties between Canberra and Beijing have not fared much better, with rifts over the origin of the coronavirus pandemic and trade bans fuelling disharmony.

The shift in preference towards South-East Asia’s commercial property is likely to continue even if the US and Australia were to roll back their tightening of monetary policy.

“It’s not just interest rates that are driving down Chinese investment in US commercial real estate,” said Kashif Ansari, Juwai IQI’s co-founder and group CEO. “You also have a structural decline that has been in place since 2018.

“This is related to Chinese government preferences regarding the direction of outbound investment. It also has to do with investors using an abundance of caution and avoiding markets where future political tensions might make things more difficult.”

Ultimately, mainland Chinese investors are far more inclined to buy commercial real estate at home as well as in Hong Kong and Singapore.

In the first three months of the year, some US$4.4 billion in domestic assets was bought by Chinese capital, dwarfing the US$500 million they invested outside the country’s borders, according to JLL Capital Markets data.

“Mainland Chinese investors are now much more inward looking in the domestic market and only consider a handful of markets like Hong Kong and Singapore when they go abroad,” said Ada Choi, head of occupier research for Asia-Pacific at CBRE.

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