Impact and implications of Chinese real estate investments
There is an old Chinese proverb which can be roughly translated into English as: ‘dig the well before you are thirsty.’ As a testament to this philosophy, China has exercised farsighted financial planning, as evident from ambitious strategies like the Belt and Road Initiative (BRI) and a global expansion of supply chains. As it stands, Chinese investments have massive implications—both in terms of capital and overall impact on the beneficiary.
Nazish Khan, Chief Operating Officer at Fidu Properties – a leading Chinese real estate firm operating in the UAE – estimates that Chinese investments in UAE real estate will grow by a whopping 70% in 2019(1). Perhaps even greater cause for optimism is the fact that this figure is not a one-off. A corresponding growth rate of 64% was recorded between 2016 and 2017. Concurrently, the Arab Investment Export Credit Guarantee Corporation(2) has reported that China is the holder of nearly a third of all FDI stock in the Arab world. It’s safe to say, that Chinese investment in the GCC is living up to the essence of the aforementioned proverb.
China as an investor
As the second largest economy in the world, China’s investment prowess is indisputable, but this powerful global presence in scale hasn’t always translated into integration across geographies. China’s global exposure still pales in comparison to its domestic economy. Meticulous forethought is exercised before an investment is made overseas, and China is particularly selective in who it chooses to do business with.
According to Prabhakar Rao, Managing Director of Gemini Property Developers, the Chinese exhibit distinctive investment habits and business acumen, characterized by colossal capital infusion, shrewd selectivity and geopolitical interests. In this regard, China’s choice of channeling its investments into Middle East real estate is a promising development, Prabhakar Rao believes.
Why Middle East?
Although China’s BRI strategy has the world divided in opinion, it has elicited an enthusiastic response in the Middle East. Oil economics and the GCC’s GDP make the region an alluring investment option for China. Statutory bodies in the Middle East have also responded by creating favourable conditions, with Dubai Land Department (DLD) at the forefront of such facilitation. DLD has gone as far as to set-up offices in China to accelerate the investment rate.
With the UAE emerging as a highly lucrative market for real estate investments – fueled by freehold ownership, affordability, high returns, future-proof offerings and tax-leniency – China’s interest is understandable. Over 4,000 Chinese companies are currently operating in Dubai, and the number of Chinese expatriates is rising rapidly as well. In the aftermath of President Xi Jinping’s second visit to the region in 2018, which bolstered diplomatic and economic ties, the China-Middle East partnership is currently at an all-time zenith.
Dubai in demand
Real estate prices have skyrocketed in cosmopolitan Chinese cities, like Beijing and Shanghai. Looking at the Middle East markets, Dubai is making strides towards becoming a top global real estate destination, as a result of market stabilization and affordability. Developers in Dubai are offering innovative purchasing options, with payments possible over an extended timeframe, as opposed to rigid repayment schedules in China. Chinese investors have shown a particularly strong interest in Dubai’s off-plan properties segment – which offers a high degree of flexibility in finance options.
The recent manifestation of Chinese neighbourhoods in Downtown Dubai, Greens, Dubai Creek Harbour and International City, are a clear indication of growing Chinese investments. These locations have witnessed vigorous real estate activity, in the past couple of years. In response, the DLD too has ramped-up efforts to achieve a target of one billion dirhams in Chinese real estate investments, in 2019(3).
Prabhakar Rao believes that fresh investments into real estate in the UAE can help offset the repercussions of the 2014 oil slump, and reinstate the region to its former glory. DLD and other regulatory bodies are operating at full capacity to encourage and attract FDI, and consolidate gains to the benefit of Dubai’s overall development, according to Prabhakar Rao. In the view of the fact that Chinese nationals—alongside Indians, Pakistanis and Britons—are among the top four real estate investors in Dubai, the positive projections for 2019 are of great consequence.
Chinese investors had long favoured the US, the UK and Australia, as property investment destinations, at the expense of the Eastern world. However, changes in political realities have turned the tide. Brexit in the UK and trade tensions with the US hamper the scope of future investments. China’s search for a risk-averse investment destination, with assured returns, has led its investors to the Emirates.
The financial imperative aside, Prabhakar Rao surmises that these Chinese investments also reflect Dubai’s international stature, as a perceived strategic and commercial hub in the Middle East. China has a penchant for investment in emerging markets, as corroborated by multiple instances from Sri Lanka to Costa Rica. According to Prabhakar Rao, China knows better than putting all its eggs in one basket, however, Dubai could emerge as one of the baskets it especially favours, in the future.