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Hong Kong

China Real Estate Investment Report 2016: The Rise of Domestic Capital

Hong Kong is one of the key destinations for Chinese outbound investment  


HONG KONG, 27 April 2016 – JLL has released a new investment report entitled <Gearing Up For a New Era of Domestic Capital>, in which the firm outlines the growing prominence of domestic capital in China's real estate investment market. The paper highlights the record-breaking year for commercial real estate investment in China in 2015, with a total value of transacted assets reaching approximately RMB 150 billion, three-quarters of which were driven by domestic investment.

Supported by a range of savvy investors including private equity funds, corporate, state-owned enterprises (SOEs) and insurance firms, China's domestic investment has expanded strongly, with a compound annual growth rate of 15.4% over the past eight years. "Given the escalating size of China's real estate investment universe and improving market transparency," the report states, "investment activity in China is set to expand further in the years to come," with domestic players still to provide the greatest contribution. 

The report goes on to identify five trends as the major forces paving the way for China's domestic investors to carry on driving investment volumes to structurally higher levels:

  1. SOEs are poised to become significant sellers in the market: With future SOE reform expected to break up real estate holdings of inefficient state-owned firms, further opportunities will emerge for acquisitions and the repositioning of assets.
  2. Chinese insurers are likely to emerge as some of the largest buyers domestically and globally: China's deregulation has allowed domestic insurers to become one of the most active groups of institutional players. As insurance companies grow more experienced with real estate investment, JLL anticipates their investments will expand and even accelerate in the years ahead.
  3. Chinese private equity funds will expand their footprints: China's real estate private equity (REPE) has the potential to develop significantly, and could even receive a boost from the activity of its domestic insurers.
  4. Securitisation is set to catalyse the next wave of investment activities: The Chinese government has been testing the concept of securitisation through numerous pilot programmes across the country for years, and the role of securitisation will grow as the government improves tax and regulatory clarity.
  5. Innovative methods will supplement mainstream investment channels: Applications like crowd-funding and peer-to-peer lending are just two examples of technology-enabled innovations in the real estate investment sphere. JLL expects certain technologies to be embraced even faster in China than they have been in the West.

"China's real estate investment universe will continue to grow in line with its economy to accommodate changing investment appetites," said Anthony Couse, Head of Capital Markets for JLL China.  "China's domestic investors are becoming increasingly sophisticated and competitive in capturing investment opportunities both domestically and globally. Foreign investors will no doubt continue to increase their footprints across China, but it will be domestic players that still provide the greatest contribution."

China's real estate market has expanded rapidly over the past several years – The total size of its institutionally invested real estate universe in 2015 was estimated to be second only to that of the US, at USD 806 billion – and JLL predicts that it is likely to maintain a swift pace going forward. "At the same time," Anthony says, "we are seeing a greater diversity of domestic investors accumulating both the size and experience to build, purchase and sell real estate assets on an unprecedented scale."

"Despite slipping slightly in global rankings, Hong Kong remains as one of the key destinations for Chinese outbound investment into real estate", said Denis Ma, Head of Research at JLL. "Over the past two years, Chinese investors have pumped US$5.3 billion into Hong Kong's real estate markets, behind only New York (US$6.6 billion) and London (US$5.9 billion); two cities that are considerably larger. In the city's commercial office market, Chinese investors have now been involved in 3 of the 4 largest transactions on record, all completed in the last 6 months. With China's enormous insurance sector and Chinese real estate private equity set to become bigger players in global real estate markets, Hong Kong—with its simple holding structures and highly liquid markets—will be well positioned to capture this growth."

With the five aforementioned trends continuing to drive the nation's real estate transaction volumes higher, Anthony concluded: "We expect to see 2015's record broke several times in the years ahead, with domestic capital still providing most of the momentum."

JLL's China Capital Markets team is composed of over 50 experienced property professionals, who offer a diverse range of skills, experience and strong local industry knowledge. The team works closely with JLL's regional Capital Markets teams to ensure clients have access to the widest possible pool of investors and capital in both local and overseas markets.

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