China’s real estate market witnessed record investment in the first quarter of the year, driven by foreign investors.
Over the first three months of 2019, investors pumped US$17 billion into the country – a huge 174 percent jump on the same period in 2018 – with foreign capital such as sovereign wealth funds and pension funds from Singapore, Canada, United States and Europe accounting for 50 percent of the transactions.
China’s continued liberalization of market access and the expansion of the scope of foreign investment have encouraged more international capital into the Chinese market, says Daniel Yao, Head of Research, JLL China.
In 2018, Chinese authorities pledged to open the finance sector and announced plans to relax the rules on the foreign ownership of financial services.
“Global investors are also allocating more to Tier 1 and strong Tier 2 cities due to the strong outlook of the medium to long term growth in the commercial real estate sector with China’s real estate increasingly acknowledged to be stable and safe.”
With a growing middle class and booming growth of the service sector, China is seeing high demand from corporates.
Among notable deals by foreign investors include Singapore-based CapitaLand’s purchase of Pufa Tower in Lujiazui CBD while Blackstone Group took a 50 percent stake in shopping centres in Xian and Zhengzhou.
The return of domestic investors
A surge of domestic investment also contributed to the strong showing in Q1. After being affected by deleveraging and high financing costs last year, investors are returning as policies are being fine-tuned and interest rates lowered to encourage investment again
“We are seeing two types of domestic investors – homegrown insurance firms and tech firms which want the properties for self-use,” says Yao.
For instance, e-commerce giant. JD.com, acquired the Beijing Jade Palace Hotel in February to transform it into a technology R&D hub and a business office.
Looking forward to the rest of the year, Yao says China will be “a buyers’ market.”
“Financially strong domestic and foreign buyers will see more opportunities to invest as some cash-strapped companies look to offload their high-quality assets for liquidity.”
Foreign and domestic institutional funds will further drive the investment in first-tier cities and other strong second-tier cities, he says.
Beneficiaries of new regional planning initiatives like the Greater Bay Area, which includes Hong Kong and Macau, Shenzhen, and Guangzhou, are also likely to see greater foreign investment as its development continues.