Foreign investors turn cautious on China’s property market as slowdown, political risks cloud outlook
- Purchases this year have trailed the monthly pace seen in the past two years as US-China ties deteriorate and diplomatic row escalates
- Shenzhen remains a favourite city despite the slower transaction volume
They spent about 27.1 billion yuan (US$3.88 billion) on such assets this year as of June 30, the property consultancy said in a report. The 4.52 billion yuan monthly flow trailed the 6.76 billion yuan and 8 billion yuan pace recorded in 2019 and 2018, respectively.
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The cooling sentiment also came on the back of a historic slump in China’s coronavirus-ravaged economy in the first quarter, which drove office vacancy rates in Beijing, Shanghai, Guangzhou and Shenzhen to all-time highs while shopping mall rents nosedived. The economy has since rebounded 3.2 per cent last quarter.
“Some investors, for example funds based in the US or the UK who are not familiar with the quick recovery of China’s consumption-driven economy, are taking a wait and see approach,” Yip said.
Travel bans and quarantine measures have also affected investments involving big outlays, Yip said. While the proliferation of technology has greased the process in pandemic times, “the final decision still has to be made on site,” he added.
Despite the slower transactions, foreign investors have shown a penchant for cities like Shenzhen, the Silicon Valley of China and home to some of the nation’s best-known technology giants like Tencent, Huawei and ZTE.
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“Industrial parks and offices are sought after in Shenzhen as tech companies are flocking to start business or expand in the hub, a sector generally supported by the government,” Yip said. “We see major industrial parks in the city with occupancy rates as high as 90 per cent.”
Foreigners accounted for one third of all transactions in Shenzhen in the first half, compared with 14 per cent in 2019, according to Cushman & Wakefield’s estimates. That trend may continue with the advent of real estate investment trusts (REITs).
“Overseas investors are still interested in commercial properties in China, particularly in first-tier cities,” said Stanley Ching, senior managing director at alternative investment manager CITIC Capital. “The approval for REITs will revitalise existing real estate assets.”
China implemented a pilot REIT programme on April 30, after more than a year of public consultations. It will allow China’s mutual funds to issue public REITs that can be bought and sold like stocks on the country’s exchanges.
The programme appears to place high priority on capital-intensive infrastructure projects with long payback periods, eschewing the more typical shopping centres, offices, hotels and rental homes.
“Traditionally speaking, shopping centres and offices are important components of REITs in other markets, for example Hong Kong and Singapore,” said Ching. “In future, we will see further expansion of the properties that can be included in the publicly traded REIT products.”
