Chinese investors may pull away from Australian hotels

Sydney, Australia's business district.

Chinese tourism to Australia keeps on growing—and Chinese investment in Australian hotels is keeping pace, for now.

Valuable Visitors

The number of Asian visitors in Australia has more than doubled over the past five years to 1.2 million per year, and according to Tourism Australia, each Chinese visitor spends an average of $8,000 while there. That's $3,000 more than the average spend for visitors from anywhere else, making the demographic particularly lucrative. 

As we noted last year, 2015 had more than 1 million Chinese citizens visiting Australia, an increase of 22 percent over 2014’s numbers. Chinese visitors are worth an estimated $8.6 billion to Australia, and spend approximately one in four of all tourism dollars in the country.

New Investment

To attract more visitors from China, developers had earmarked approximately AU$15 billion ($11.42 billion) in investment last year to build new integrated casino resorts and expand existing ones across Australia. 

Today, Chinese investment in Australia has reached the highest level since the global financial crisis, up 12 percent from 2015 to $15.4 billion last year. A new report from Sydney University and accounting firm KPMG found a record 103 deals were signed between Chinese and Australian companies in 2016.

Demystifying Chinese Investment in Australia co-author Professor Hans Hendrischke, from the University of Sydney Business School, said that commercial real estate, infrastructure projects and health care attracted the most investment last year. The report found that more than a third of Chinese direct investment in Australia was in commercial real estate, although the numbers fell slightly from 2015.

"Chinese investors acquired some $1.7 billion of hotel assets over the past two years, with expectations that this level of investment will continue to accelerate over the coming year," the report claimed. "Greaton’s major acquisition of the $700-million W Hotel & Ribbon Residences development in Sydney is an example of this significant investment."

Let the Good Times Roll?

But will those numbers keep growing? Maybe not. The report warned that Australia could lose Chinese investment in the future if Chinese investors keep eyeing the U.S. and Europe rather than keeping their funds in the Pacific region. Chinese investment in Australia had slowed down. "Australia has proven itself to be a preferred destination for Chinese capital, but we must be cognizant that the growth in investment is slowing compared to other parts of the world such as the United States and the EU," Hendrischke said.

Chinese Government agencies are taking steps to strengthen their oversight of overseas investments by Chinese companies. The main considerations behind these policies are understood to be "mitigating excessive capital outflows, which are having a negative effect on the value of the RMB," and reducing financial risks caused by outbound investments that have not undergone appropriate due diligence, that are overly leveraged, and/or that do not make sense from a business and/or financial perspective.

Along with film, entertainment and sports clubs, real estate and hotels are among the industries singled out for a tendency for irrational overseas investment, according to a statement jointly released by the National Development and Reform Commission, the Ministry of Commerce, the People's Bank of China and the State Administration of Foreign Exchange.

In other words—any companies planning Chinese financing to help get a hotel underway in Australia should start looking elsewhere for funds.