Asian governments in transition impact property investment appetite

Chinese and Malaysian investor appetite for Australian residential development sites and off-the-plan apartments is set to rise over 2013 as both countries undergo political change and a degree of uncertainty.

China has already transitioned to new leadership, with  Xi Jinping replacing Hu Jintao as general secretary of the Communist Party in November, along with six new appointments to the Politburo Standing Committee, the inner sanctum of the Chinese Communist Party, the world’s most powerful political organisation.

While the transition has been smooth, high net worth Chinese investors will be concerned, perhaps even alarmed, at recent reports that Xi Jinping is arguing for a return to "Leninist" principles.

"Why did the Soviet Union disintegrate? Why did the Soviet Communist Party collapse? An important reason was that their ideals and convictions wavered," Jinping reportedly told his party behind closed doors and reported widely outside of China, including by the New York Times.

Such comments - not reported in the state-controlled Chinese press - may encourage Chinese investors to increase their already substantial investment in Australian residential real estate.

Jittery Malaysian investors may also be considering upping their investments in Australia ahead of a national election which must take place before the end of June, with political tensions rising following the recent deportation of Australian independent senator Nick Xenophon, over his apparent support for opposition leader Anwar Ibrahim, which has raised questions about Malaysia's so-called democractic freedoms.

They will also be concerned at the loss of financial market confidence following the benchmark FTSE Bursa Malaysia KLCI Index falling more than 4% since January over concerns that the ruling Barisan Nasional may win fewer seats in parliament.

Melbourne in particular stands out, with Chinese developers investing almost $500 million there in the past two years.

Wallace Wang, a property developer and vice-president of the SRE Group headquartered in Hong Kong and Shanghai, told the ABC in September last year that investing in property in Australia was attractive for its lifestyle, a good return on investment and – importantly – because its regulatory system was transparent.

In a further sign of growing Chinese interest in Australian real estate, the Australia China Real Estate Association set up in Sydney last year to help Chinese investors get a better understanding of the Australian culture and regulatory differences.

 

 

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Malaysian investors are also active in Melbourne.

“Malaysian investors want to put their money in a strong offshore market like Australia while they still can,” a commercial agent told Property Observer.

In recent months two prominent sites in the Melbourne CBD have sold to Malaysian investors.

In late 2012 Malaysian developer Mammoth Empire secured a prime development opportunity in the northern fringe of CBD after acquiring the low-rise 398-406 Elizabeth Street site for $15.1 million.

Mammoth Empire is currently building a 55-storey residential tower – MY80 – on the adjoining corner of A’Beckett and Elizabeth streets at a cost of $250 million.

In January a Malaysian investor paid $11 million for the former flagship Fletcher Jones showroom at 1 Queen Street at the north-west corner of Flinders Street, above expectations of around $10 million.

The investor is expected to lease the existing asset and resell it at a future time if commercial prices rise and possibly after it has secured a redevelopment permit, according to a report in The Age.

The former Fletcher Jones premises was marketed by Clinton Baxter of Savills and Matthew Stagg of Colliers International.

The property offers development potential by virtue of its prime corner position and spectacular views along the Yarra River and across to Southbank.

Baxter told Property Observer prior to the sale that the views were “extraordinary – up the Yarra to the MCG, and across the river to Southbank and Crown”.

“The views can never be built out.  So most likely, you will see a brand-new apartment, office or hotel building on the site in a few years’ time,” he said.

Other noteworthy commercial sales to Malaysian investors include the listed Starhill Real Estate Investment Trust, managed by Malaysian conglomerate YTL Corp, which in June paid $415 million for a portfolio of three five-star Marriott hotels – the Sydney Harbour Marriott, the Brisbane Marriott and the Melbourne Marriott.

At the same time as Malaysian investors look to snap up Property in Australia, Chinese developers are also looking to escape local property rules and invest offshore in places like Sydney and New York.

Shanghai Greenland Group is spending 8 billion yuan ($1.2 billion) on projects in Australia, according to the Australian Financial Review.

The Chinese government has introduced tougher home purchase rules in around 40 cities to keep house prices under control and also introduced a property tax in Shanghai and Chongqin.

There are also plans for a nationwide real estate tax.

According to a report in Malaysian newspaper The Star, quoting fund managers and analysts, a change in government could cause the Malaysian market to go into limbo for up to six months as the new government determines its investment policies.

The main concern among fund managers and analysts is whether the policies of the opposition – should it win the next general election – will be market friendly.

Government is held by the Barisan Nasional (BN), which won 140 seats in the 2008 election, its worst result since the 1969 elections and down from the 198 it won in 2004.

The opposition Pakatan Rakyat coalition won 82 seats, denying the BN a two-thirds majority required to pass amendments to the Federal Constitution.

There have been three prime ministers and leaders of the BN since the 2008 election victory.

The current prime minister (since 2009) is Datuk Seri Najib Tun Razak.

The ruling BN coalition’s tenure expires on April 28, 2013, and the prime minister must call for the general election within 60 days of this date.

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