However, what was really noteworthy in the third quarter was not only the large size of some of the investments transacted, but the broad spectrum of sentiment which persists about the China real estate market and the equally wide range of strategies which have been honed by incoming players to take advantage of the prevailing mixed sentiment.

On the one hand, several overseas PE funds, most notably Morgan Stanley and AM Alpha, were net sellers of assets in the market this quarter, these two funds disposing of three prime commercial assets in Shanghai between them .

At the same time, other overseas institutions and especially a number of listed REITs, remained key investors in tier 1 commercial investment properties. Within the quarter, ink REIT followed its first quarter acquisition of EC Mall in Beijing with the acquisition of Shanghai Corporate Square Towers 1 &2.

While the vendor Shui On benefited from the disposal by improving its turnover rate and speeding the development of its new projects by making this disposal, Link REIT made a classic core investment play, acquiring twin office towers with very stable cash flow and whose top 10 tenants are a mix of MNCs across various industries and with minimal vacancy.

Other listed REITs whose approach is similar to Link REITs’ are Mapletree Greater China Commercial Trust and Hong Kong listed Yuexiu REIT, which have also joined the ranks of increasingly active overseas institutional players, having acquired quality office properties in Shanghai in the second and third quarter, respectively.

Given the recent volatility of China’s stock markets and the late summer devaluation of the RMB, many high net worth individuals have decided to allocate a larger portion of their funds to real estate. In response to this shift in sentiment, a number of domestic REITs, asset management companies, PE Funds, quoted developers and institutional investors all quickened the tempo of their activity in the China investment market in the third quarter.

In fact, the impact of their simultaneous movement into the market and their focus on acquiring quality office assets in core Puxi and Pudong was a key contributor to the spike in turnover witnessed in the third quarter.

While overseas listed REITs were more attracted to acquiring viable properties which whose coming up for sale as at least partially induced by present market uncertainty, creating the need for their owners to realise cash from certain eminently saleable assets, another major trend which emerged in the third quarter was that of domestic players moving in to acquire distressed assets in investment plays whose higher level of risk/potential reward made the exclusive province of very experienced domestic players, with strong hands and a keen eye for market value.

These included problem assets and portfolios whose potential their original developers or owners did not possess sufficient time, resources or local market expertise to unlock. This was witnessed both in some major investments made within the quarter at the asset as at the corporate entity level.

With respect to major examples of this trend witnessed at the asset level, the acquisition by Cinda Asset Management Company of the Guosheng Plaza, a 510,000 sq metre commercial complex containing office and apartment buildings a shopping mall and a hotel situated in Beijing’s East Second Ring Road for a consideration of US$1.7 billion, from its second owner, Singapore listed GuocoLand, making it the largest single investment deal in standing buildings concluded in the third quarter.

This move was a classic example of acquisition of partially completed distressed asset with a torturous legal history by an incoming opportunistic overseas investor who realised the project’s enormous potential by ultimately lacking the patience and knowledge of the intricacies of the local legal system to sort out the lawsuits in which its acquisition move was continuously embroiled.

With respect to equity deals which occurred at the corporate entity level, the first example was Evergrande’s acquisition within the quarter of the Chinese Estate Holdings of a Chengdu portfolio of three properties, all within the urban area and two situated in the city centre.

While these assets were not performing well from their perspective of their returns on investment, their acquisition permitted Evergrande to reposition itself in one move from being a developer of properties solely in Chengdu’s suburban districts and counties to the more estimable position of being a core downtown player.

The second example was Sunac’s acquisition of a private overseas real estate company at the entity level holding a portfolio of development properties, majority of which comprise either mixed use or luxury residential developments in the core inner city area and Tianfu, with a total saleable area of 2.41 million sq m, of which 1.39 million sq m remains unsold.

These properties comprised one mixed use complex and four high end residential developments, all within Chengdu’s central urban area. What prompted Sunac to lay out RMB 3.2 billion to make an entity level play in a market which is still recovering from oversupply was this national level developers’ confidence in being able to extract the full remaining value in the latter development phases of the four properties contained within this portfolios.

Jim Yip is a managing director of investment sales and advisory at DTZ/Cushman Wakefield