Funny money may be fuelling foreign investment

An ongoing anti-corruption crackdown in China has raised questions about the source of some funds being invested in Australian real estate.

Kroll, a global risk mitigation group, and Mergermarket, an independent mergers and acquisitions (M&A) intelligence service, have released the 10th issue of Kroll’s Spotlight Asia series, to trace the shifting trends of Chinese investment in Australia.

The report noted that real estate attracted US$8.8 billion ($12.5 billion) worth of Chinese investment in 2014 Foreign Investment Review Board approvals.

“Activity has been concentrated on residential property in Sydney and Melbourne,” the report said.

“China’s high-profile anti-corruption clampdown, however, has brought to the fore worries that the Australian property market may be a target for those seeking a safe haven in which to park flight capital of questionable origins.

“Similar risks are extant in the M&A market, and their manifestation can lead to regulatory backlash.”

Kroll senior managing director Violet Ho said Australian businesses that want to profit from inbound investment at this time of change need to be able to distinguish between legitimate red flags and stereotypical misconceptions.

“Rather than run the risk of slipping into xenophobic hysteria,” Ms Ho said, “there needs to be an education process – local businesses need to acquire a working understanding of what to look for, what to look into, and how to interpret information they come across in the process of getting to know an interested foreign party.”

The report found that China has become Australia’s chief source of approved proposed investment, supplanting the US for the first time as the country’s top foreign investor.

Chinese investment in 2014 increased 74 per cent, from US$11.3 billion ($16.1 billion) in 2013 to US$19.7 billion ($28.1 billion).

In terms of M&A in 2014, Australia saw nearly twice the number of deals from Chinese bidders announced in 2013, due in part to a shift towards middle-market deal making, according to the report.

[LinkedIn: What impact are foreign buyers having on your market?]


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