Foreign Investors Turn Cautious as China’s Real Estate Market Faces Challenges

• 16 August 2024
• International News
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Amid growing uncertainty in China’s real estate market, foreign investors are becoming increasingly selective, with many shying away from commercial properties, according to Asia.nikkei dated 05 August 2024.

In the first half of 2024, cross-border deals in China’s commercial real estate sector dropped by 13% year-on-year, totalling US$3.3 billion. This downturn reflects broader concerns about the market’s stability, particularly among U.S.-based investors, who question whether they can exit the Chinese market profitably. Meanwhile, Japan led the Asia-Pacific region with US$3.7 billion in similar deals, despite experiencing a 35% decline in activity.

Singaporean investors, however, continue to be significant players in China’s commercial property market, contributing around 6.9 billion yuan (US$1 billion) in the first half of 2024, despite broader geopolitical concerns. Yet, even this represents a decline from their peak investments in 2019. The slowdown highlights growing apprehensions among long-time China optimists who previously thrived in the market across various cycles.

China’s property market has faced significant challenges since the government implemented measures to curb property developers’ borrowing in 2020, leading to high-profile collapses like that of Evergrande. This has shaken the confidence of Chinese families and investors alike, with overall property investments in China falling by 10.1% in value to 525.3 trillion yuan in the first six months of 2024.

Singapore’s sovereign wealth fund, GIC, a consistent top buyer in China’s property market, has expressed concerns that the country has reached the end of its growth model, which relied heavily on real estate. This sentiment is echoed by other investors who are now increasingly cautious about the long-term potential of China’s property investments.

As a response to the evolving market dynamics, some investors are shifting focus. Keppel Corp., backed by Singapore’s Temasek Holdings, has been “de-risking” its portfolio in China over the past few years. The company has sold its land bank in China for about SG$3 billion (US$2.2 billion) and has booked significant profits. Despite this, Keppel CEO Loh Chin Hua acknowledged that opportunities in China remain tough compared to other markets like Singapore and Vietnam.

Keppel is now concentrating on real estate services that cater to sustainable development, such as retrofitting older buildings to meet environmental standards. In October, the company closed a 1.6 billion yuan China-focused investment fund for sustainable urban renewal programs, signalling a strategic shift towards areas with growing demand, such as energy transitions and data centres.

Despite the difficult conditions, some investors see opportunities in the current market. Principal Financial Group, in partnership with China Construction Bank, is focusing on acquiring logistics centres in China’s Yangtze River Delta and Pearl River Delta, aiming to grow total assets to 4 billion yuan by the end of 2024. The group believes that, in today’s context, acquiring quality assets and diversifying portfolios is still feasible, particularly by raising funds from family offices and trusts.

Nevertheless, the outlook for commercial real estate in China remains mixed, with challenges expected to persist in the near term. Investors are likely to maintain a cautious approach, prioritising occupancy rates over-aggressive expansion and adapting their strategies to navigate the complex market landscape.

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