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Report on Business Chinese buyers avoid Canadian hotels after investment rule changes

Beijing’s crackdown on foreign investments is deterring Chinese companies from making large purchases of Canadian hotels.

Once a promising source of capital in the sector, Chinese entities are no longer major buyers. Foreign purchases accounted for about 6 per cent of the total acquisitions in the Canadian hotel market last year, according to a report by the commercial realtor Colliers International Group Inc. That was down from about 40 per cent in 2017, when Hong Kong-affiliated Leadon Investment paid $1.1-billion for a portfolio of Canadian hotels that included the Delta hotels in Calgary, Toronto and Victoria.

Last year’s activity was also significantly lower than in 2016, when foreign acquisitions accounted for 67 per cent of total sales activity. That year, Hong Kong’s Bluesky Hotels and Resorts Inc. paid $2.1-billion for InnVest’s suite of Canadian hotels.

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“On a larger scale, we have found that has really dried up,” said Alam Pirani, an executive managing director with Colliers’ hotel division. “But I do think there is Chinese and other Asian capital that is looking at Canada. But those tend to be smaller investors,” he said.

Since Beijing unveiled new restrictions on foreign investments in real estate in 2017, and after large Chinese buyers such as insurance conglomerate Anbang Insurance Group and state-run CNOOC Ltd. made some high-profile blunders, Chinese companies have not spent more than $100-million on Canadian commercial property.

Total Chinese investment in Canada fell by 47 per cent last year compared with a 40-per-cent drop globally, according to the University of Alberta’s China Institute.

“The decline in Canada was more pronounced," said Gordon Houlden, the institute’s director. "My belief is that Canada for the moment is seen as less attractive in part because of past purchases that did not pan out well, especially in the energy sector, and, in part, some regulatory concerns.”

Anbang was nationalized by Beijing in 2018 and forced to sell a large office complex in Vancouver less than three years after buying it. CNOOC’s $15-billion acquisition of oil sands giant Nexen Inc. is widely considered a failure.

Even though the big Chinese investors have disappeared from the Canadian commercial real estate landscape, there are still deals involving Chinese capital. Last year, Chunghwa Investment bought the Metropolitan Hotel in Vancouver for about $37-million, according to Colliers.

Nevertheless, the investment volume is lower. Total domestic and foreign investment in Canadian hotels fell to $1.5-billion last year from $3.5-billion in 2017, according to Colliers.

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Mr. Pirani disagreed that Chinese real estate investors have been dissuaded by the performance of other Chinese investments in Canada.

“I have never seen a more profitable period. I would say 100 per cent [of the] reason why is willingness of existing sellers. They just don’t want to dispose of assets,” he said.

Demand for commercial property in Toronto and Vancouver has been strong for about a decade, as the two cities have become magnets for businesses and residents. The increased economic activity has driven office vacancy rates to record lows and fuelled demand for accommodation.

Colliers expects investment in Canadian hotels to reach $1.5-billion to $2-billion this year with domestic companies responsible for most of the purchases. More interest in smaller markets such as London, Ont.; Kelowna, B.C.; and Quebec City is expected to help underpin the sales activity.

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