Chinese investors take up the real estate slack in Dubai

At this moment in time there is no doubt that Chinese investors are moving real estate markets around the world, investing billions of dollars and there are no sign of a reduction in this investment in the short to medium term. Indeed while many people are growing a little concerned about the Dubai real estate market which this week we saw the announcement that Chow Tai Fook Endowment Industry Investment Development Group has invested a whopping $1.9 billion – after acquiring assets from real estate developer Dubai Pearl.

This is one of many enormous transactions ongoing in the Dubai real estate market, often involving Chinese investors, amid signs that demand is still growing. The interesting fact about this particular investment is that the assets are not yet completed with a 2017 completion date pencilled in. When you bear in mind that developments such as these began prior to the 2008 crash, this is something of a leap of faith.

Global diversification

You can stick a pin in any of the major worldwide real estate markets and Chinese investors will be behind the majority of recent asset price rises. London, Australia and now Dubai are just a small number of the international real estate markets which have fallen under the spell of Chinese investors. Perhaps one of the major differences between the new breed of Chinese investors, and their international counterparts, is their ability to look long-term and also use international real estate as a hedge against their domestic investment exposure.

Quote from PropertyForum.com : “While there is no doubt that 2013 has been an exceptional year for Dubai property prices, especially bearing in mind how the world economy has performed, how do you think the market will perform in 2014?”

We may see the introduction of specific overseas investor real estate taxes at some point because markets such as London are being pushed to levels which are, in the minds of many people, unsustainable. The UK government has already pledged to level the real estate investment playing field for domestic investors who fall under the current UK government tax regime.

Is investment dependent upon Chinese economic growth?

While there is no doubt that many of the major Chinese real estate investors that have emerged over the last few years have benefited enormously from Chinese economic prosperity, a slowdown in the Chinese economy would not necessarily have a major impact upon their spending power. The Chinese government has already introduced an array of regulations to the domestic real estate market amid signs that it is overheating, which has pushed more and more Chinese real estate investors towards overseas markets.

It is also worth noting that many of these Chinese real estate investment companies looking towards the likes of Dubai are either wholly-owned or partly owned by the Chinese government. This gives them access to enormous financial fire power and will allow the Chinese authorities to stretch the tentacles of the country way beyond its natural borders.

Conclusion

When you take into account the fact that the Dubai property market has been recovering for some time now, domestic and international demand is very strong, the introduction of yet more Chinese-based real estate investment companies has certainly added fuel to the fire. At this moment in time it is difficult to see a let up in the ongoing rise in Dubai real estate prices with such pent-up demand emerging on a regular basis. Whether the Dubai authorities will at some stage have to intervene remains to be seen but the last thing they want is yet another boom and bust scenario for the Dubai real estate market.

Markets and investors might forgive an initial boom and bust real estate episode but, if the Dubai authorities do not learn from past mistakes, they may find that international real estate investors are not as forgiving the next time.