Chinese investors are switching from Australian commodities to property amid oversupply in the resources market.
The latest sign of the rising trend is the US$400 million purchase by Beijing-based Sunshine Insurance Group Corp. of Sheraton on the Park, a five-star hotel overlooking a public garden in central Sydney.
Demand for real estate assets is being driven by Chinese businesses and wealthy individuals seeking trophy assets for their cash overseas, the Wall Street Journal reported Friday.
State-owned enterprises that led the charge overseas in search of commodities to satisfy demand at home have been overtaken by private equity firms, real-estate developers and insurance giants.
Other recent targets include cinema chains and beach resorts on Australia’s Gold Coast.
“What they were motivated by was security of supply, but now as supply exceeds demand it’s taken the heat out of that particular argument,” said Mike Elliott, global leader for mining and metals at accounting and consulting firm EY.
The retreat from mining investments comes as Australia’s once-booming resources industry grapples with sliding prices.
Companies trying to sell assets to raise cash are getting lowball bids, if any at all.
The annual value of mining-related deals by Chinese companies in Australia fell 80 percent from 2011 to 2014, a far cry from 2008 when Chinese snapped up iron-ore pits the last time commodity prices tumbled.
It is a shift that is playing out globally.
China’s overseas investments in metals and energy tumbled to US$35.2 billion last year from more than US$50 billion in each of the three years prior, according to an investment database compiled by the American Enterprise Institute and the Heritage Foundation.
Total outbound investment in 2014 was nevertheless 0.7 percent higher than in 2013, totaling US$84.37 billion, as investors spent more in other sectors.
China’s real-estate investments rose to US$15.72 billion in 2014 from US$11.71 billion in 2013 and just US$3.72 billion as recently as 2011.
Among the trophy properties chosen by Chinese buyers is the Waldorf Astoria hotel in New York, which Anbang Insurance Group Co. bought earlier this year for US$1.95 billion.
Other active investors include China Oceanwide Holdings Ltd. which is planning a tower that will be one of San Francisco’s tallest.
In Australia, Chinese property and entertainment giant Dalian Wanda Group Co. is buying an office building on Sydney’s Circular Quay near the famed Opera House and Harbour Bridge and plans to spend US$1 billion to transform it into a hotel and apartment tower.
Wanda last year acquired a beachfront hotel project in the seaside resort town of Surfers Paradise on eastern Australia’s Gold Coast.
Chinese companies are still likely to buy some commodity assets, though not in areas of oversupply such as iron ore.
UBS A.G. predicts that in iron ore, the global surplus of annual output relative to demand will widen to more than 200 million tons — triple South Korea’s yearly imports — by 2018.
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