Outward Chinese investment resilient in face of volatility

The big economic news in Asia Pacific only two weeks into the new year is the reboot of China’s stock market correction that began last summer, along with the continued weakening of the Chinese currency, the renminbi. All this volatility, while dramatic, is unlikely to dampen the flow of outward investment from China into hotel markets around the world, particularly in Asia Pacific.

In fact, some analysts now expect a banner year. 

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“I don’t think the stock markets will have an impact. The connection of market volatility and its property sector is not the same between China and the West. For example if you had the same volatility in the U.K. it would be hugely detrimental,” said Paul Hart, executive director of Knight Frank, a Hong Kong real estate agency.

Volatility in the value of the yuan, while a factor weighing on markets in the country, could also play in favor of outward investment. The People’s Bank of China, the country’s central bank, has suggested that it will allow the renminbi’s value to continue a recent decline.

“Chinese investors have the ability to diversify offshore and there is a push to diversify. There’s no shortage of appetite for Chinese investors to go offshore," said Hart. "If you look back couple of quarters you can see that there has been no impact on offshore investments in real estates despite the yuan’s depreciation.”

Both owner-operators and institutional investors based in China are increasingly likely to consider overseas hotel purchases in order to diversify out of renminbi-denominated holdings within China.

China-focused overseas property website Juwai.com predicts that Chinese investment in hospitality in other countries will grow between 5 percent and 15 percent year-on-year in 2016. That was in December, before Chinese stocks and the renminbi began the year on a downward trend.

The RMB depreciated 4.5 percent against the dollar throughout all of 2015 and lost a further 1.6 percent in the first week of 2016.

Certainly, Chinese investment in overseas hotels has been on an upward swing in recent years. In 2012, Chinese investment in hotels beyond mainland China’s borders totaled roughly $100 million. By 2015, that number had risen to more than $5 billion.

Simon Henry of Juwai.com recently said he expects the majority of outbound Chinese hotel investment to focus on the U.S., Australia and U.K. As the only country of the three in Asia Pacific, Australia is likely to experience another record year of inbound investment, owing in part to the weaker Australian dollar and high occupancy rates.

Australia-based observers are expecting hotel investment in the country to exceed AU$4 billion ($2.8 billion) this year, with Asian investors led by China competing with American, British and European investors.

Interest in Australian hotels is already high this year, and CBRE Hotels Director Wayne Bunz told media in Australia that he has handled more than AU$100 million in due diligence so far this year. Bunz noted that strong interest in Sydney and Melbourne is now complemented by new interest in leisure markets, including Cairns and the Gold Coast.

Hong Kong-based Gaw Capital is reportedly considering making a bid for the Ascendas Hospitality Trust portfolio, one of the larger Australian portfolios likely to be sold this year, with a total of 1,954 rooms. U.S.-based Blackstone is also looking at the $1.4-billion Australian portfolio.

Other Australian hotel assets up for grabs this year include the 1,753-room M&L Hospitality Portfolio, the 396-room Hilton Melbourne South Wharf and the 140-room InterContinental Double Bay. 

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