CHINESE OUTBOUND REAL ESTATE INVESTMENT:

New waves, New Destinations Presented by

Paul Hart

Executive Director

Greater China

David Ji

Director, Head of Research &

Consultancy, Greater China

2

Chinese outbound Real estate

investment

Two key questions Given the market uncertainties, will there be a

reduction of investment from China?

What factors bring investors to the market?

To Answer These questions We will look at… Domestic factors that drives outbound capital

Global movement of Chinese capital – Who, where and what?

Future trends and conclusion

How changes

in the Chinese

market drive

outbound

capital

4

slowdown in the growth of

China’s GDP & Household income

Source: CEIC, IMF, Knight Frank Research

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F 2017F

GDP Income

Household growth slowed

but stabilised at around

8%-10%

GDP growth remains positive

and stabilised at around

6%-7%

5

0

50

100

150

200

250

300

350

400

450

500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Million sqm

Between 2005 to 2015, residential inventory

increased from 86 million sqm to 452 million

sqm, an annual compound growth of

18%

Source: National Bureau of Statistics, Knight Frank Research

T-1 cities: 34 million sqm

Chinese residential inventory

glut

7.5%

6

Home price divergence between

First & second-tier cities

Source: National Bureau of Statistics, Knight Frank Research

80

90

100

110

120

130

140

150

160

170

180

2011 2012 2013 2014 2015

Beijing Shanghai Guangzhou Shenzhen

Tianjin Dalian Chengdu Wuhan

Index

(Jan 2011=100)

BJ

T2

SZ

SH

GZ

7

Policy drivers for outbound

investment

“Belt and Road” initiative,

Asian Infrastructure Investment Bank Chinese policies aimed at channelling investment abroad

US trade law Latest move to remove legislative restrictions on foreign pension funds investing in

US properties and REITs will raise interest.

Sino-British, Sino-Australian ties Capitalise on bilateral relationship improvement to drive investment

China’s 13th Five Year Plan Likely impact of changes in foreign-investment policies?

Who, Where &

What

9

Chinese outbound global real

estate investment

Source: RCA, Knight Frank Research

Note: Data as at end 2015

0.6

2.3

4.4 5.6

15.8 15.1

30

0

5

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015

US$ billion

Volume in 2015 almost double of 2014

Gateways Manhattan, London, Sydney

and Melbourne, takes more than

40% of total

10

Outbound investment status of

developers & Insurers

2014 2015

Developers 10 14

Insurance companies 4 6

Source: Knight Frank Research

Top 20 players who made offshore investments

2014 2015

Developers 3 2

Insurance companies 2 6

SWF, Banks, Funds 5 2

An analysis of the top 10 deals

Developers more active but

insurance companies are focused on

bigger deals

11

Top 10 Chinese outbound

investment deals in 2015

Date Purchaser Property Name Location Property Type Consideration

(US$ million)

Feb Anbang Insurance Waldorf Astoria Manhattan Hotel 1,950

Aug Anbang Insurance Heron Tower London Office 1,172

Jan China Investment Corp

(JV LaSalle Investment) Meguro Gajoen Tokyo Office 1,170

Jul Taiping Life Insurance 111 Murray Street Manhattan Dev site 820

Jan Greenland Group Tebrau Bay Waterfront City Malaysia Dev Site 683

May Bank of China 7 Bryant Park Manhattan Office 600

Jan Ping An Insurance Tower Place London Office 506

Oct

China Life Insurance

(JV Qatar Investment

Authority)

99 Bishopsgate London Office 420

May Anbang Insurance Merrill Lynch Financial

Center Manhattan Office 414

Jul Fosun International Ltd Palazzo Broggi Milan Office 384

Source: RCA

Note: Data as at end 2015

12

Chinese outbound investment

in gatewayS

Source: RCA, Knight Frank Research

Note: Data as at end 2015

0

1,000

2,000

3,000

4,000

5,000

6,000

2010 2011 2012 2013 2014 2015

London Manhattan Sydney & MelbourneUS$ million

13 Source: RCA, Knight Frank Research

Chinese investment heavily

focuses In gateways

52.3%

88.3% 90.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Manhattan London Sydney & Melbourne

14

Manhattan 52.3%

Los Angeles 2.8%

Chicago 2.2%

Seattle 1.9%

Dallas 1.7%

Houston 1.7%

Other cities 37.5%

Chinese investment in

the US in 2015

The majority of

US$5.78 billion Chinese capital flowed into Manhattan

Source: RCA, Knight Frank Research

Note: Data as at end 2015

15 Source: Knight Frank Research

Chinese purchases in US:

key transactions in 2015

16 Source: Knight Frank Capital Markets, RCA

Chinese purchases in London:

key transactions in 2015

17

20

40

60

80

100

120

140

Q2

200

7

Q3

200

7

Q4

200

7

Q1

200

8

Q2

200

8

Q3

200

8

Q4

200

8

Q1

200

9

Q2

200

9

Q3

200

9

Q4

200

9

Q1

201

0

Q2

201

0

Q3

201

0

Q4

201

0

Q1

201

1

Q2

201

1

Q3

201

1

Q4

201

1

Q1

201

2

Q2

201

2

Q3

201

2

Q4

201

2

Q1

201

3

Q2

201

3

Q3

201

3

Q4

201

3

Q1

201

4

Q2

201

4

Q3

201

4

Q4

201

4

Q1

201

5

Q2

201

5

Q3

201

5

Q4

201

5

GBP USD EUR SGD TWD RMB

Source: Knight Frank Research

£: 28%

increase

RMB: 19%

discount from

Q2 2007

price level

Commercial price index in the City of London

advantages enjoyed by Chinese

purchasers over others

18 Source: RCA, Knight Frank Research

Office 40%

Hotel 8%

Retail 14%

Dev site 36%

Industrial

2%

2014 2015

Office 42%

Hotel 18%

Retail 8%

Dev site 27%

Industrial 5%

Chinese outbound investment by

sector Globally

19 Source: NGKF, Knight Frank Research

New supply’s relative size to

total stock (2016-2019)

London

5.2% 12.6 million sq ft

Manhattan

4.7% 10.3 million sq ft

Sydney & Melbourne

10.9% 11.9 million sq ft

Hong Kong

market

21

Major deals completed by Chinese

Institutions in Hong Kong in 2015

Date Purchaser Property Name Property Type Consideration

(US$ million)

Nov Evergrande Group MassMutual Tower Office 1,612.8

Sep Shimao Property New Kowloon Inland Lot

No. 6542

Dev Site

(Residential) 905.8

Nov China Life Insurance One HarbourGate Office 755.1

Sep China Poly Group Tuen Mun Town Lot

No. 542 Castle Peak Road

Dev Site

(Residential) 223.2

May CITIC Pacific Sha Tin Town Lot

No. 605

Dev Site

(Residential) 189.5

Sep Centralcon Group 11 Au Pui Wan Street Dev Site

(Mixed) 144.5

Dec Chinalco Overseas

Holdings Limited Far East Finance Centre Office 48.0

Source: RCA

22 Source: HKSAR Rating and Valuation Department / Knight Frank Research

Why the office sector: supply &

demand 2009-2019

0

1

2

3

4

2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F

Grade-A office completion

(million sq ft)

Average annual completion between

2016-2019 is 1.75 million sq ft

Historical annual take up is around 1.9

million sq ft

23

67,000

6,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Hong Kong developers Chinese developers

No of flats

It is estimated that Chinese developers will

provide around 6,000 flats, or around

8% of the total supply in the next

three years (2016-2018)

Chinese developers in Hong Kong

Source: Knight Frank Research

Future

trends and

Conclusion

25

Outbound investment status of

major Chinese Developers

In 2014, six of the top 10 developers invested off shore, by 2015, this rose to eight

Looking at the next 10 in the ranking six also invested in 2015

In 2014, four of the top 10 insurers invested off shore, by 2015, this rose to six

None of the smaller insurers invested offshore

Already made investment offshore

No investment offshore

Rank Insurance company

2014

Premium

income

(US$ billion)

Outbound

investment

status

(2014)

Outbound

investment

status

(2015)

1 China Life Insurance 58.2

2 PICC 51.9

3 Ping An Insurance 49.6

4 China Pacific Insurance 30.0

5 New China Life Insurance 17.2

6 China Taiping 12.3

7 Taikang Life 10.6

8 Anbang Insurance 9.1

9 Sunshine Insurance 6.1

10 Sino Life 5.7

Rank Developer

2014 Property

sales

(US$ billion)

Outbound

investment

status

(2014)

Outbound

investment

status

(2015)

1 Greenland Group 37.7

2 Vanke Group 33.7

3 Wanda Group 25.1

4 Poly Real Estate 21.4

5 Evergrande Group 20.6

6 Country Garden 20.2

7 China Overseas Land & Investment 17.6

8 Greentown China 12.4

9 Sunac China 11.2

10 Shimao Property 11.0

Source: Knight Frank Research, public sources

26

Insurers’ investment in developers

Gives Dual Exposure

Source: Knight Frank Research, public sources

China Life

Insurance*

Ping An

Insurance*

New China

Life

Insurance

Anbang

Insurance*

Sino Life

Insurance

Foresea Life

Insurance

Hexie Health

Insurance

China Vanke* 7.01% 24.26%

Greenland Group* 20.14%

Country Garden* 9.91%

Sino Ocean Land* 29.99% 29.98%

China Jinmao 9.50%

Gemdale

Corporation* 14.60% 27.63%

Financial Street

Holdings 13.35% 15.88%

Landsea Group* 9.90%

* The firm has also invested in overseas property markets

27

“Fourth wave” investors Look at

Regional hubs

“Fourth Wave” investors - a mixed group of investors consisting of lesser known

small- to mid-cap companies and developers, private equity funds and individuals,

who were increasingly active in overseas markets.

These “Fourth Wave” investors are after quality stock available in primary and

secondary locations, especially in the US and Australia.

For example:

Kuafu Properties, a New-York based developer backed by a Chinese private fund, acquired four US

properties within one year of entering the market, spending over US$500 million.

Landsea Group, a small specialized developer, teamed up with Miami-based homebuilder Lennar to develop

a condominium tower in Manhattan.

Wanxiang Group, an auto parts manufacturer, has invested in more than 60 US properties since 2010,

including office, retail, industrial, hotel and development sites.

Macrolink Group, an international trader engaged mining, chemicals and financial investment acquired

several plots in the Iskandar Development Region in Malaysia, where it plans to develop tourism-related

projects.

Nanshan Group, a private-owned Chinese conglomerate, acquired the Pullman hotel at Sydney Airport for

US$61 million.

Source: Knight Frank Research

28

Inbound property investment

for Shanghai

Source: RCA

Note: Excluding development site deals

0

1

2

3

4

5

6

7

2010 2011 2012 2013 2014 2015

Shanghai inbound investment volume US$ billion

29

Top 10 Shanghai Inbound deals

in 2015

Date Purchaser Seller Property Name Property Type Consideration

(US$ million)

Aug The Link REIT

Shui On Land Limited

JV Brookfield Property

Partners

Corporate Ave 1 & 2 Office 1,031

Dec Lee Kum Kee JV China

Vanke Shui On Land Limited Corporate Avenue 3 Office 891

Sep ARA Asset Management

Group CSI Properties Platinum Tower Office 448

Aug Yuexiu REIT Carlyle Group JV CLSA

Capital (Citic) Hongjia Tower Office 423

Dec ARA Asset Management

Group Gaopeng Shanghai RE BEA Finance Tower Office 422

Aug Blackstone LVMH JV Arnault family L'Avenue Office 403

Aug PAG JV Goldman Sachs Gaw Capital JV He

Xiaoqiong Ciro's Plaza Office 330

Jun Mapletree Commercial

Trust Morgan Stanley Sandhill Plaza Office 303

Jan AVIC Joy Holdings (HK)

Ltd

Franshion Properties JV

Shanghai International

Port Group Co Ltd

Shanghai Intl Shipping

Service Center (Bldg 17) Office 252

Oct Carlyle Group Yuchang Property Group Manpo International

Plaza Office 233

Source: RCA

Note: Excluding development site deals. Preliminary data as at December 2015.

30

Conclusion

Chinese outbound investment is expected to be strong in 2016, supported by a

growing need of diversification from the cooling domestic market.

Going forward, the US, given its market depth and diversity, will remain the most

important destination for Chinese investors. Large institutions will continue to target

major gateways where there is quality pipeline and strong rental and capital value

growth prospects. Meanwhile, small- to mid-cap (so-called “Fourth Wave”) investors

will seek opportunities in regional hubs.

Chinese insurance companies will remain as the key investor in the next few years.

They will also continue to take an interest in developers who have extensively

expanded overseas.

Open, business friendly, and with sufficient supply of quality commercial property,

Shanghai has become the focus for inbound investment into China.

In contrast to recent curb on outflow of individual funds, the Chinese government’s

various initiatives, such as “Belt and Road” and Asian Infrastructure Development

Bank, are going to encourage Chinese firms and their investment expand overseas.

31

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