International investors extend their inroads into China's commercial real estate sector

By Zheng Yangpengyangpeng.zheng@scmp.com / https://www.scmp.com/property/hong-kong-china/article/3006527/international-investors-extend-their-inroads-chinas?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | April 22, 2019 6:52 PM SGT
International investors have extended their inroads into China's commercial property sector this year, as the largest cities become hunting grounds for office towers, shopping malls and mixed-use projects.
Global investors have splashed out 29.2 billion yuan (US$4.35 billion) in the first three months on properties in Shanghai, a huge jump from 9.1 billion yuan a year ago, according to real estate service firm Cushman & Wakefield. In Beijing, offshore investors accounted for 56 per cent of the total 15.5 billion yuan in big-ticket transactions in the first quarter, which is a 69 per cent rise from the same period last year, according to CBRE.
The trend began last year, when offshore investors with access to cheaper and longer-term funds gained an advantage over local developers and investors who were facing a credit squeeze amid Beijing's crackdown on debt. In 2018, US$14.2 billion worth of deals was led by foreign investors, 32 per cent of all major transactions and a record high proportion.
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"What set this round of the buying spree apart from the previous expansion is that global investors now regard China as an imperative destination, as they seek greater exposure to one of the world's largest, but underinvested markets. We see a lot of first-time buyers coming into this market," said Gordon Liu, Cushman & Wakefield's North China head of capital markets.
Alvin Yip, head of the firm's China Capital Markets, said foreign investors are buoyed by the liquidity they have access to. In the first quarter alone, global funds targeting Asian property have raised US$6 billion, mainly from pension, insurance and sovereign funds. "This mean they will maintain this momentum for the rest of the year," he said.
Analysts said while Chinese investors' funding conditions had eased slightly from the worst period last year, they are mainly backed by long-term funds seeking low-risk primary assets while there is an absence of funds with greater risk appetite.
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"Overall, local and global investors are driving the market together but global investors are retaining the upper hand," said Liu.
Rahul Ghai, managing director of Zurich-based fund Partners Group's private real estate Asia unit, said its longstanding focus on office and logistics assets in Chinese first-tier cities had helped it to fend off competition and secure good deals.
Rahul Ghai, managing director, private real estate Asia, Partners Group. Photo: SCMP Handout
"A lot of investors are looking for core assets and core-plus asset, so we feel there are good opportunities for us focusing on value-added opportunities," he said. "Yes, it's hard [to hunt down good assets], but we still see good deals. It's a big market."
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