Foreign funds return to China real estate market

Of the 17b yuan worth of mega deals in Shanghai in the first half, foreign acquisitions account for 81pc, three times the level for the whole of 2012

PUBLISHED : Monday, 16 September, 2013, 12:00am
UPDATED : Monday, 16 September, 2013, 4:10am

Foreign capital is returning to the mainland's real estate investment market, with major deals in Shanghai helping to drive the number of transactions in the first half of the year to three times the level for the whole of 2012.

"There is more to come, at an even faster pace," said Stanley Ching, senior managing director and head of the real estate group at Citic Capital, a private equity firm.

Transactions valued at US$10 million or above that were completed in Shanghai in the first six months of the year amounted to 17 billion yuan (HK$21.4 billion) and foreign acquisitions accounted for 13.8 billion yuan, or 81 per cent, according to a study by international property consultancy DTZ.

By comparison, foreign firms were responsible for 4.58 billion yuan of deals in 2012, or about 14 per cent of the total transaction value of 33 billion yuan for the year.

In June this year, Citic Capital closed a US$683 million property fund that will focus on acquiring retail properties on the mainland, with investors coming from the United States, Europe, the Middle East and Asia. Hong Kong-based Gaw Capital Partners is also in the final stages of closing a US$1 billion fund that will target properties mainly in first-tier cities.

"We will close plus-six billion yuan of deals in the next two months," said chairman and managing principal Goodwin Gaw.

In 2011 and 2012, en-bloc office transactions in Shanghai were heavily skewed in favour of domestic investors, who accounted for 84 per cent and 86 per cent, respectively, of the acquisition value, said Andrew Ness, head of research at DTZ. But with foreign real estate funds now in an aggressive acquisition cycle, this proportion shot up to 81 per cent in the first half of this year.

Last month, Carlyle Group and Townsend Group announced a strategic partnership deal with Shanghai Yupei, one of the largest logistics warehouse developers in China, to invest in 17 warehouses in the country.

Analysts said most mainland developers were facing liquidity problems and some big players had listed overseas to get offshore funds.

"That has created opportunities for real estate funds. But more players also mean higher competition," said Ching.

Meanwhile, the outlook for real estate investments was clouded by slowing economic growth on the mainland, he said. "We will closely monitor the upcoming third plenary session of the party's Central Committee in November. This usually indicates the new leadership's economic agenda for the next decade," he said.