Last week, KPMG in collaboration with The University of Sydney released their annual report Demystifying Chinese Investment in Australia, examining and quantifying Chinese outbound direct investment (ODI) in Australia. Globally, Australia remains the second largest recipient of Chinese ODI since 2007, behind only the United States. Unsurprisingly, commercial real estate is still Australia’s largest sector for Chinese investment at 36% of total ODI value.
Arguably, nobody understands the industry better than Mark Wizel, National Director at CBRE Melbourne, Australia’s largest commercial real estate group and a global leader in real estate services. Since 2009, Wizel has transacted over AU$11 billion in commercial property sales.
China Insiders sat down with Mark this week to talk about the latest findings and provide a behind-the-scenes look into the stats and facts of Chinese investment in Australian commercial real estate.
1) What is Australian commercial real estate’s biggest barrier for continued growth in Chinese investment?
Firstly, Australia cannot rely on its intrinsic relationship with China as a safety blanket for continued interest and growth in investment. The industry’s greatest challenge is ensuring that Australian commercial real estate remains competitive and attractive, particularly as the increasingly savvy and knowledgeable Chinese consumers discover more and more markets around the world such as South America and parts of Europe.
Secondly, we need to look at a range of things with the priority macro area for review being tax and from a technical point of view to ensure our capital cities are more accessible and user-friendly in terms of planning frameworks.
2) Why does New South Wales, considered the ‘priority investment state’, receive the predominant share of Chinese investment in commercial real estate? Is it a matter of availability, interest, or both?
While New South Wales will continue to attract strong interest from Chinese buyers, the figures are somewhat skewed towards NSW. If considered in isolation, the average ‘deal size’ of commercial real estate transactions in New South Wales will, generally speaking, always be far greater than Australia’s other capital cities. For example, the average Sydney CBD development site transacts for approximately AU$80 million. Comparatively, Melbourne CBD sites sit at approximately AU$34 million.
Anecdotally, migration growth and major Chinese corporations such as Alibaba, CITIC Group, AIA (Hong Kong), setting up headquarters in Melbourne is testament to Chinese commitment and affinity for the city, and will contribute greatly to ensuring sustained long-term investment in Melbourne. Melbourne also benefits greatly from being home to the oldest established diaspora of Chinese population, which is best understood from the historic perspective of the Victorian Gold Rush and Melbourne’s Chinatown, the first Chinatown established in the Southern Hemisphere and world’s second, behind only San Francisco.
3) Since 2009, CBRE has completed an estimated total of approximately AU$9 billion worth of transactions with Chinese buyers and you have built arguably one of Australia’s strongest commercial real estate sales teams. How important is relationship building, or guanxi, in managing Chinese clients?
A strong, personable foundation is key to developing meaningful and long-term relationships with Chinese clients. Transparency, respect and taking a long term view are the three pillars of building relationships and managing Chinese clients. There is such appeal for people to want to do ‘quick deals’ in this space yet almost always this will result in tricky dealing with Chinese buyers. When I was younger I never knew what my parents meant about not being able to buy experience, now I fully understand and am just pleased that our team is on the experienced side of the ledger when it comes to Chinese investment and dealing with Chinese buyers.
4) What are the differences in Chinese and Australian mentalities when it comes to negotiation and making purchasing decisions?
The major difference is around the purpose and drivers of the two buyer groups. Despite a reputation for paying strong prices to secure assets, Chinese buys are actually quite risk averse. There is always different ways that buyers see opportunities. For example, if a Chinese group buys an asset at 5 per cent, local bidders may think that it was expensive but that same buyer may be accustomed to buying comparable assets in Hong Kong or China on yields of 3.5%. This mentality, combined with the well-known long-term investment outlook of Chinese buyers, demonstrates why Chinese buyers are such an active player in our market.
5) There is a belief that as ‘trophy assets are being held onto tightly’ across major Australian cities, Chinese investors will begin to turn to tourism infrastructure and retail assets. Do you agree that commercial property availability is decreasing or 'drying up'?
Our current supply relates more to the fact that many locally based owners of such assets simply are not motivated to sell assets due to the very low cost of debt at present. This will change overtime and as the cycle evolves. We believe that when these trophy assets across commercial office, retail and hospitality do become available, there will be a wide range of Chinese buyers who will strongly contest to secure the property. There is also no doubt that tourism is right on the radar for Chinese buyers as it is for local owners and local buyers. To think that only 4% of the Chinese population has a passport yet the tourist visitors to Australia from China last year was over 1 million, it is scary to think how lucrative this part of our sector could be in years to come.
Mark Wizel - CBRE Melbourne, National Director
Mark Wizel is highly revered in the industry for his knowledge of capital flows from Asia and his innate ability to discover and deal with mainland Chinese buyers that has seen him build an exceptional CBRE Commercial Agency Sales team. A regular media commentator, Mark has built his sales experience from the days of selling sheepskin products with his father at Melbourne’s Queen Victoria Market to building a team of high performers that deliver exceptional results for his clients.