Foreign investors are becoming more active in China as the market undergoes cyclical and structural changes.
Real Capital Analytics data show overseas investors spent more than RMB80bn in China last year, up 7% from the 2017 total of RMB75bn. However, their share of the investment market increased to 34% from 27%.
Major deals secured by international investors include Blackstone buying the Mapletree Business City office complex and the Vivocity Shanghai mall from Mapletree Investments for around $1.25bn. Singaporean groups CapitaLand and GIC Private teamed up to acquire the Star Harbour International Center project in Shanghai’s Hongkou district for RMB12.8bn ($1.9bn).
The spate of deals has continued into this year, with Blackstone reported to be acquiring Chamtime Plaza in Pudong, Shanghai for $1.5bn, while AEW and CapitaLand bought a 70% stake in Pufa Tower in Lujiazui, Shanghai from HNA Group for a little over $400m.
James Macdonald, head of China research at Savills, says: “Chinese capital has not been as competitive in recent months due to the tightening of domestic liquidity as a result of the nation’s financial de-risking programme. Chinese developers and investors cannot borrow as much or as cheaply as they have done in the past.”
Yields across China, but especially in first tier cities, are at all time lows, says Macdonald, which means investors need to look at the market differently. “Investors cannot just ride the cycle and hope what they buy will double in value, they need to work to enhance value,” he says.
“In a lower growth environment, investment has to be more long term and foreign investment managers tend to have more experience of asset management and project enhancement.”
There is also greater acceptance of China from global investors, who recognise that Beijing and Shanghai offer depth, liquidity and quality of assets comparable with gateway cities around the world. “Global investors realise they are underweight Asia and China is a massive part of that Asia allocation,” says Macdonald.
However, Macdonald points out the transaction totals do not necessarily give the whole picture. “The statistics might be slightly misleading as, while investment deals may be concluded by international fund managers, often the LPs are domestic investors,” he says.