China may put foreign-exchange reserves into US real estate

PUBLISHED : Tuesday, 28 May, 2013, 12:00am
UPDATED : Tuesday, 28 May, 2013, 5:29am

China is studying the possibility of investing a portion of its US$3.4 trillion in foreign-exchange reserves in US real estate, said two people with direct knowledge of the situation.

The State Administration of Foreign Exchange began the study after seeing signs of a recovery in the US property market, said the people, who asked not to be identified. China may acquire properties, invest in real estate funds or buy stakes in property companies, they said.

China has set up an operation in New York to make alternative investments in the US, an effort by the country's foreign-exchange reserves manager to diversify away from US government debt, The Wall Street Journal reported last week, citing people it did not identify.

Prices for single-family homes increased in 89 per cent of US cities in the first quarter as the housing market extended its recovery following a five-year slump.

The median sales price rose in 133 of 150 American metropolitan areas measured, from 74 a year earlier, the National Association of Realtors said in a report released on May 9.

"In the long run it should be a good opportunity as the US property market is gradually rebounding," said Frank Chen, head of China research at CBRE Group.

"It will help diversify the foreign reserves' investment portfolio. Properties such as office building have stable yields, which match its investment strategies."

China Investment Corp, the nation's sovereign wealth fund set up in 2007 to seek higher returns on part of the reserves, is adding stable-return assets, including infrastructure and real estate, as it cuts an "over-reliance" on US debt, then chairman Lou Jiwei told a forum in Hong Kong in January.

Lou was named finance minister in March.