Foreign investors steer clear of Chinese real estate

Foreign investment in mainland real estate dived in the past six months as growing competition from domestic investors and a worsening global economy made it more difficult to raise funds.

Jim Yip Kin-shing, co-head of China investment at DTZ, said foreign private-equity real estate funds were finding it harder to get global investors to invest in new funds for acquisitions in China.

According to the company's latest research report, foreign investment in the mainland real estate market - which is dominated by commercial properties - amounted to 2.8 billion yuan (HK$3.44 billion) in the first six months.

This accounted for just 22 per cent of the total investment value of 12.1 billion yuan.

Total foreign investment for the whole of last year amounted to 17.1 billion yuan, or 43.8 per cent of the 39 billion yuan total.

'The overall investment market in Shanghai was weak compared with that in 2011,' Yip said.

He said he expected total investment to reach 20 billion yuan this year, adding the situation in Shanghai could well reflect the market trend nationwide.

Research from commercial real estate services firm CBRE shows that total foreign purchases in China dropped about 40 per cent in the first half of this year compared with the second half of 2011, which the property consultant says is indicative of the market environment across the country.

'However, overseas investors still retain a strong appetite for welllocated and high-quality commercial assets,' Greg Penn, executive director of CBRE Investment Properties Asia, said.

Domestic financial institutions dominate property acquisition in China.

Recent high-profile examples include Baoshang Bank's purchase of Longyu International Commercial Plaza for 1.95 billion yuan and China Jianyin Investment's acquisition of an office building in Shanghai's North Bund for 2.31 billion yuan.

'Domestic buyers are not focusing on yield when making purchases, which is making it difficult for foreign investors to compete with them on certain deals,' Penn said.

'However, we are seeing yield expectations of some international investors becoming more reasonable and adapting to the market, with strong competition from cash-rich state-owned enterprises.'