China regulator opens property market to private-equity investors in bid to boost developer liquidity, foreign access

The CSRC on Monday detailed a programme to allow PE funds to invest in the property market, which is expected to aid highly leveraged developers

The move allows foreign funds to tap the mainland China market just as investors are reassessing opportunities after three years, experts say

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Residential buildings under construction at Tahoe Group Co.’s Cathay Yard development in Shanghai on November 9, 2022. Photo: Bloomberg

Published: 5:00pm, 21 Feb 2023

A pilot programme that will allow private-equity (PE) investors to launch funds to buoy the property market in mainland China will provide much-needed liquidity for developers and help foreign funds tap the market, according to analysts.

The China Securities Regulatory Commission (CSRC) announced the launch of the pilot programme, which allows the creation of fixed-asset PE investment funds to invest in residential and commercial real estate and infrastructure projects, in an announcement on Monday night. It also encouraged foreign investors to participate in related funds.

“The policy will provide new funding sources to revive existing property assets,” said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institution. “These PE funds have big potential to participate in ensuring deliveries of housing projects and mergers and acquisitions of real estate assets. It’s positive for tackling some developers’ distressed assets.”

The programme is expected to help diversify funding channels for China’s highly leveraged developers, as property companies’ fundraising slumped to a seven-year low last year, dragging down the sector that contributed as 30 per cent of China’s annual gross domestic product before a liquidity crunch engulfed developers including China Evergrande Group and Sunac China Holdings.

A view of the China Securities Regulatory Commission (CSRC) office building, located at Beijing’s Financial Street in downtown Beijing, on December 18, 2019. Photo: Simon Song

The CSRC requires that the funds be mainly led by institutional investors, with the first-round investment of no less than 10 million yuan (US$1.46 million), and the first fund with a size of at least 30 million yuan, according to the announcement.

International investors can participate via qualified foreign limited partnerships (QFLPs), which allow licensed international funds to invest in China’s PE and venture-capital markets, it said.

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