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EXPERT OBSERVATION
The continued appreciation of the yuan could put pressure on the Chinese Government to ease the capital outflow restrictions which have impacted investment in Australian commercial property.
The issue for China is that the yuan is up massively over the last 12 months and that has been driven by the new capital control regulations which have been very effective in turning around the outflow of capital.
However that appreciation could see Chinese goods becoming less competitive and that is not what the Chinese will want to see.
If that is the case then it seems clear that some tinkering with those new capital outflow regulations, and among them those pertaining to real estate transactions, will occur and that will help to both stabilise the yuan at a level that is acceptable to China, and of course benefit Australian commercial property.
According to a report from London based Pictet Wealth Management, China’s total capital outflow was estimated at US$166 billion in 2017, down 78% from US$761 billion in 2015 and 67% from US$500 billion in 2016 as a result of the new regulations.
China’s initial tightening of capital outflow rules in 2016 followed a fall of nearly 7% in the value of the yuan against the USD which had been the largest depreciation since 1994.
The foreign exchange turnaround, he said, had seen the yuan appreciate 10.4% against the USD over the 12 months to December.  
But more importantly if we look at the movement over the last two months from December when  1 USD bought 6.62 yuan and then last week when 1 USD bought 6.29 yuan we see an appreciation of 5.2% in just six weeks.
That is a huge appreciation of the yuan on top of the significant rise over the last 12 months, and, if it continues, then it must be troubling for at least some sectors of the Chinese manufacturing industry which of course is a hugely significant contributor to capital inflow.
The sheer weight of Chinese capital seeking offshore property investment remains very significant with Australia still the number two destination in the world behind the US for Chinese investors.
We need to keep in mind that while investment outflows from China have been curbed, Chinese investors are adjusting to the new rules and fine tuning their investment strategies.
To date in the new year we have seen little change in interest from Chinese investors, if anything, what may have restricted sales volumes, has been as much about the lack of quality stock in increasingly tightly held markets.
That has been particularly the case in the retail sector, while falling vacancy and incentive levels have been very encouraging for office market landlords.
A further factor driving continued Chinese investor interest in Australian property were regulations aimed at curbing Chinese domestic real estate activity in restricting developers’ ability to raise finance for their projects.
On the one hand we have the regulations restricting developers from seeking off-shore opportunities and on the other hand also being restricted in their activities at home.
It is a difficult time for property developers on the domestic front, who, under the centralised banking system, already face limited options for funding new projects.
It is not inconceivable then that the further restrictions on their ability to raise finance through debt and equity, may have them looking offshore where finance for their projects may prove easier to come by.
Mark Wizel is a Melbourne-based CBRE national director.
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The factors driving continued Chinese investor interest in Australian property: Mark Wizel

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December brings out the opportunity for property experts to delve into their Christmas stockings and bring out a crystal ball to predict what some of the key trends for the pending 12 months may be.
Whilst uncertainty remains over weather commercial tenant demand will bounce back or if shoppers will start buying anything other than groceries again, one thing that is certain is that the continued emergence of Asian capital into all commercial property markets across our major capital cities.
Whilst the latest wave (post 2010) of Asian investment is being compared to the highs of the Japanese assault on Australian property in the early 1990's when  investigate in more detail it is so different for so many reasons and on so many different levels.
Malaysian and Singaporean investment dominated 2013 with a wide range of transactions being completed in both Melbourne and Sydney, deals varied from development sites to commercial office investments but the flow was strong and is expected to remain this way in 2014.
Whilst it is widely accepted that the stimulant for investors from these countries to target Australia has been based on their own political instability, the fall in the value of the Australian dollar and cooling measures that have been instilled on developers in their home countries, the Chinese investors and developers seem to be driven by many different reasons to their nearby counterparts from South East Asia.
Chinese investments into the Australian property market arguably presents our industry with the greatest opportunity for job and industry growth than any other single structural buyer shift spanning back more than 30 years.
Next year will see the continued dominance of Chinese investors wanting to acquire both development and passive opportunities as the relationship between Australian property and Chinese players grows with additional education across a wider range of markets, and more established infrastructure to assist the Chinese in completing transactions locally. Good news stories are being sent back to China off the back of sustained strong performance for Chinese developers, as they continue to deliver on many projects that they have been working on for some time.
As a property industry, we must better equip ourselves to benefit from the structural change that is occurring on so many levels. We must work hard and with purpose to ensure that we do not jeopardize in any way the intent and established level of comfort to date that Chinese investors have towards Australian property.  We must remain competitive on all levels from the federal government to local council and do what we can to encourage, foster and assist in the development of Chinese investment into our markets.
 
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 Mark Wizel is director of CBRE Melbourne city sales and Victorian retail investment properties
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Mark Wizel

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