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Jones Lang LaSalle’s white paper analyses changes and opportunities for investors
“Foreign investors are once again aggressively chasing the momentum and the undeniable opportunity that lies within China’s retail and office property markets.” says David Hand, Head of Investment for Jones Lang LaSalle China, adding, “At the same time as international capital re-emerges strongly, local developers face mounting challenges to finance their development programmes as a result of a government-inspired cocktail of tightening measures.” Hand believes, “Opportunities will emerge for foreign capital to acquire, to finance, and to partner with local developers across all sectors of the property market.” With a nod to the ‘Chinese characteristics’ that are often applied to domestic versions of international trends, Hand added, “Official encouragement for directing capital into ‘socially attractive’ sectors such as developing more affordable housing, aged-care facilities, and for investment into other social infrastructure such as higher-education and health care, will inevitably result in increasing investment opportunities in such areas.” He also foresaw in the future that, “This new direction may even be given further impetus by innovative new investment vehicles such as a ‘china-style REITS’ and RMB funds. For now, however, the main story remains the insurance companies that are busily ramping-up their real estate capabilities, and we will soon increasingly experience their market presence domestically and hopefully internationally as well.”
Foreign buyers return: Following the global financial crisis, 2010 saw foreign institutional investments rebound significantly, accounting for 41% of all en bloc real estate investment transactions. With Asian-based investors making up the bulk of foreign transactions (34%, or USD 5.1 billion), those from Hong Kong and Singapore, in particular, aggressively pursued investments across China. US- and European-based investors took a more cautious view, concentrating on Shanghai, a city with limited trading stock. Without broadening their horizons, future opportunities will be harder to take advantage of.
Domestic investor climate: After a surge in domestic investor activity during 2009, mainly driven by state-owned enterprises, 2010 saw a 7% decrease in volume. This was partly due to a change in government policy. With tighter lending controls, domestic investors are facing difficulties in securing funds. Unlike mature markets, domestic capital markets are limited in providing funding alternatives, putting domestic investors at a disadvantage. Wary of asset price inflation, they are being encouraged to pursue investments with ‘Chinese characteristics’, such as affordable housing and senior care facilities.
In September 2010, Chinese insurance companies were finally given the green light on commercial real estate investment. With an investment cap of 10% of total assets, these giants can potentially dominate the market. Despite total assets standing at just over USD 770 billion in 2010, and with a steady yearly growth of 20%, significant activity has yet to appear. Many challenges must be met, due to a lack of:
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