Chinese are looking for commercial real estate in Southeast Asia, the U.S. is losing appeal.

Investors from China are increasingly turning their eyes to Southeast Asian commercial real estate markets as political strife and rising interest rates make the U.S. and Australia less attractive investments, Juwai IQI reports.

Indonesia a major destination for Chinese investment

According to a report by this real estate technology company, Indonesia is now the top destination for Chinese overseas investment in the sector. Malaysia ranks third and Thailand ranks fifth, according to the company based on stakeholder inquiries. Indonesia and Malaysia ranked fourth and fifth respectively in 2022, while Thailand did not even make it into the top 5.

While the US was the preferred investment destination last year, it did not make the top 5 at all, while Australia dropped from second to fourth place in 2022.

"Investors see Southeast Asia as an attractive destination because commercial ties between China and these countries are growing, while they are shrinking with the US," the report said. "Their fast-growing economies provide opportunities for land development, tourism facilities, industrial parks and industrial and logistics facilities.

The growth forecasts for Southeast Asian economies

The International Monetary Fund (IMF) forecasts that Southeast Asia's three economies will grow by 3.4% to 5% this year.

"Chinese investors are avoiding markets where future political tensions are possible," says Juwai IQI CEO Kashif Ansari.

Interest articles in the US and Australia are currently at 5.25% and 4.1% respectively, while Indonesia, Malaysia and Thailand are between 2% and 5.75%.

Restrictions on Chinese foreign investment

The better growth prospects for Southeast Asian countries are encouraging investors to put money there, says Juwai IQI.

The restrictions on Chinese foreign investment are causing "an added advantage for Southeast Asian countries as investors find it easier to approve projects in these countries," the report added.

Tensions and shifting preferences

The relationship between Washington and Beijing has deteriorated over the past few years due to disagreements over trade, technology and even territorial claims in Asia, adding to tensions. Relations between Canberra and Beijing have not improved either, with disagreements over the origin of the coronavirus pandemic and trade bans contributing to discord.

The shift in preference for Southeast Asian commercial real estate is likely to continue even if US and Australian monetary policy eases.

"The decline in Chinese investment in US commercial real estate is not just due to interest rates," says Kashif Ansari. "This is also due to the structural decline that began in 2018. This is due to the Chinese government's preference for the direction of foreign investment. This is also due to investor caution and avoidance of markets where future political tensions could complicate matters. "

The bottom line is that Chinese investors are much more inclined to buy commercial real estate both at home and in Hong Kong and Singapore.

In the first three months of the year, Chinese capital bought $4.4 billion worth of domestic assets, surpassing the $500 million invested outside the country, according to JLL Capital Markets.

"Chinese onshore investors now pay much more attention to the domestic market and only consider a few markets such as Hong Kong and Singapore when they go overseas," said Ada Choi, head of occupancy research for the Asia-Pacific region at CBRE.