June 26, 2015

China’s real estate industry is no longer the exclusive preserve of big investors, as property developers turn to crowdfunding to help finance the construction of commercial and residential projects.

In June, China’s biggest commercial property developer Dalian Wanda Group and online payments services company 99 Bill launched the country’s first ever commercial property crowdfunding project to invest in building the next group of Wanda Plaza projects. With a minimum investment of Rmb1,000 (US$161) and expected annualized rates of return of over 12%, the project (known as Stable Earner 1) is opening the world of commercial property to a whole new audience of individual investors.

It follows on from successful crowdfunding efforts from Greenland, Country Garden and Modern Land to support residential property projects over the past year.

For Wanda, crowdfunding is a departure from its traditional capital-intensive financing model and is expected to facilitate its restructuring into a “light-asset service provider”. Reports suggest the company is aiming to raise at least several billion yuan.

Joe Zhou, Head of Research – East China at JLL, says many of the country’s commercial property developers are adopting asset-light or capital-light strategies, similar to many of their counterparts in Europe and the US. Within the past year, Vanke – China’s biggest residential property developer – also has announced its transition to an asset-light strategy.

And with developers looking to own fewer buildings, investment opportunities are emerging for an increasingly wide audience. “Developers have been active in the past few years in getting equity investment for projects in China by partnering with domestic and overseas institutional investors. Crowdfunding is an alternative method for getting equity investment,” Zhou says.

Chinese investors flock to new opportunities

Appetite is strong for property crowdfunding projects in China. “Individual investors have been keen to directly invest in commercial real estate,” Zhou says. “As there have been no REITs in mainland China, many retail investors have chosen to buy strata titled commercial properties, but it often has been difficult to get decent returns due to poor property management, uncoordinated leasing/tenant mix and difficulties in repositioning. Crowdfunding provides retail investors with the opportunity for equity investment in commercial real estate.”

It also offers a fresh alternative for developers facing a sluggish market with tighter financial conditions. Following years of rapid growth, China’s property market has lost momentum, making cash harder to come by for many heavily indebted developers.

The growth of internet financing in both the real estate industry and the wider business community is, however, raising many questions for both the regulators who are cautious about growth of unregulated credit pools, as well as investors looking for a good home for their money.

Zhou says: “The major challenges stem from the concerns retail investors have about the outlook of the commercial property sector. In China, there have been many discussions about the oversupply of retail space and the huge impact of fast growing e-commerce on traditional retail.”

Read more about China’s retail challenges in JLL’s China60 report

This article was originally published on JLL Real Views

Joe Zhou


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