BlackRock looking for bargains in China as economy cools
Asset manager sees opportunities for investment in China as economic slowdown takes toll but rules out HK on risks from higher interest rates
BlackRock, the world's largest asset manager, says it is time to actively look for real estate opportunities in the mainland as the economic slowdown takes its toll, but cautions against investments in Hong Kong because it is too early in the interest-rate cycle.
John Saunders, BlackRock's head of Asia-Pacific real estate, said Hong Kong prices would come under pressure as US interest rates rose.
He forecast housing values would drop 15 to 20 per cent, although he did not specify a timeline for the price decline.
In contrast, China's property market looked more attractive, as downward pressure on the economy was beginning to squeeze some of the weaker players.
"The downturn in China is nothing new. It has been going on in the last two years, at least," Saunders said.
As the economy slows and sellers are more willing to trim prices, he said "it makes sense that it becomes quite an interesting market for us".
China's factory production and fixed-asset investment in the country were both weaker than expected in August, triggering concerns full-year economic growth will be less than the targeted 7 per cent.
Saunders said opportunities would arise when the market showed signs of stress or turmoil.
He said the recent devaluation of the yuan would be favourable to foreign investors.
"Everybody is worrying about China … I think everybody should be more worried about Hong Kong," said Saunders, saying an interest rate rise will trigger a significant pullback in capital values of homes.
He echoed the views of a growing number of analysts who said Hong Kong home prices could fall as much as 30 per cent by 2017 as interest rates rose and the economy deteriorated.
"The yield is extremely low [in Hong Kong] and there is no room to absorb any rise in interest rates," Saunders said.
He said the current situation might look similar to the one in 1994, when property prices fell 28 per cent over 18 months because of mainland austerity measures to regulate the macro economy and rise in US interest rates.
"Our fund business owns nothing in Hong Kong," Saunders said. "Our main areas of focus are China, Australia and Japan."
Saunders was the Asia chief executive of MGPA, a private equity real estate investment advisory company focused on Europe and the Asia-Pacific, before it was taken over by BlackRock in 2013.
BlackRock is the world's largest publicly traded investment management firm. At the end of June, the company had US$4.72 trillion of assets under management in equity, fixed income, cash, alternative investment, real estate and advisory strategy markets.