Foreign capital gives mainland China's commercial property a miss as global uncertainties and slowing domestic economy take a toll on sentiment

By Peggy Sito peggy.sito@scmp.com / https://www.scmp.com/business/article/3042446/foreign-capital-gives-mainland-chinas-commercial-property-miss-global?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | December 26, 2019 10:53 AM SGT
Foreign investors' purchases of mainland Chinese commercial real estate have fallen dramatically over the last year as global economic headwinds and slowing domestic growth have taken a toll on the market.
But as overseas funds have withdrawn, domestic buyers have been returning to the sector, according to property experts.
In the fourth quarter of last year, foreign investment was strong, making up about half of all money going into the sector. That level has now fallen to less than a tenth.
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"Foreign institutional funds had been relatively active in China's commercial assets late last year as yuan-denominated buyers became more inactive amid credit tightening," said Li Yandong, partner at Gopher Asset's real estate fund investment unit.
"The trend was different from what happened in 2017 when mainland funds faced excessive liquidity in the market."
Gopher is the asset management arm of New York-listed Noah Holdings, which is the largest independent wealth manager in China. As of the first quarter of this year, its real estate funds' assets under management surpassed 17.5 billion yuan.
The buying by foreign funds has slowed down as global economic uncertainties and the prospect of lower asset values dampened appetite, Li said in an interview with the South China Morning Post in Shanghai.
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In the fourth quarter of last year, foreign capital accounted for about 50 per cent of total investment in China's commercial property, according to a report by Cushman & Wakefield. That had slipped to about 30 per cent in the first quarter of this year and more than 20 per cent in the April to June period, the data showed.
By the third quarter, domestic money enjoyed by far the lion's share, accounting for 91 per cent of the total investment volume. One reason was the acquisition of several large pre-distressed assets in which domestic buyers have a clear advantage, said Cushman.
A notable international investment deal in the third quarter was a collaboration between the UK developer Chelsfield and Pamfleet, a property fund manager, to purchase office blocks at the Daning Life Hub in Shanghai for 1.46 billion yuan (US$210 million).
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Yuan-denominated investment funds have gradually come back to the market even as financing pressures on domestic enterprises have continued to build. High-quality projects are still sought after by investors, Li said.
Amid the uncertainties, Li said Gopher would focus on smaller projects and "add-values", with an eye on money from wealthy individuals in China.
"Given global economic uncertainty, the economic slowdown in China deterred some international investors' [and raised] expectations of further depreciation of the yuan currency, and lower asset values," said Eric Lu, executive director of capital markets for Cushman & Wakefield's East China operation.
Lu said weakened end-user demand hit by the economic slowdown is also a concern.
The Chinese's economy has been under severe pressure throughout 2019, dragged down by the trade war with the US. But the phase-one trade agreement might give firms and exports some hopes of stability.
Lu expects investments in future will be evenly distributed between foreign and domestic players.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.