Foreign investors are stepping into China’s real estate, propping up a market where local companies were once king

Foreign investors are playing a bigger role in China’s commercial real estate sector, partially filling the gap as mainland Chinese investors scale back their presence amid Beijing’s deleveraging campaign.

Foreign investors also seem to have the upper hand in terms of financing for the first time in a decade, accessing cheaper funds overseas – and the backing of an investor base content with a longer investment cycle.

However, questions remain whether foreign investors can fully offset the new caution of their mainland counterparts – a tall order given the tendency for China’s domestic developers to take on highly-leveraged deals that enabled them to outbid foreign competition for the past decade.

“I see increased interest in China. A few years ago foreign investment in China were mainly opportunistic. Now they demand a lower return, and the investment strategy aligns with global asset allocation demand,” said Stanley Ching, senior managing director of Hong Kong-based Citic Capital.

United States private equity group Blackstone in June raised US$7.1 billion for its second Asian real estate fund and an additional US$2.3 billion for a regional buyout fund, the first of its kind in Asia by the firm. Singapore’s sovereign wealth fund GIC and the Canada Pension Plan Investment Board have also launched funds with local developers to acquire rental apartment projects.