Foreign capital is stealing Chinese real estate

The profit-seeking nature engraved in the bones makes capital naturally have a cruel side of preying on the weak, just like a fierce wolf in the wilderness, when he sees a dying elk, he will not hesitate to rush up to divide and eat. From the default of debt bills by Sino-Ocean Group, which has a state-owned background, to Country Garden, a "cosmic real estate enterprise", which has encountered "the biggest difficulty since its establishment", many real estate companies are still in the darkest moment. This round of real estate enterprise insurance began in the second half of 2021, once the situation opened, smelling the smell of profit, a group of foreign capital moved by the wind. According to a report by the Zhuge Housing Data Research Center, in the past two years, many foreign investors such as BlackRock and Goldman Sachs have targeted the stocks and bonds of Chinese real estate companies, and insurance housing companies are their main targets. At the end of 2021, Goldman Sachs' portfolio management team said it was buying Chinese real estate bonds; In the previous months, BlackRock increased its holdings of Sunac shares twice at HK$19.22 per share and HK$13.92 per share; In September 2021, Marathon Capital bought Evergrande bonds, "and firmly believed that there was an absolute opportunity", and UBS Asset Management and HSBC Asset Management also increased their positions. The stocks or bonds of the insured company are a high-risk investment, but the advantage is that it is cheap. Foreign-funded institutions frequently change the stocks and bonds in their hands in order to achieve the wonderful drama of "buying at low prices and selling at high prices". However, at this stage, foreign capital is by no means limited to buying stocks and bonds of housing companies at low prices. They want, and more. 1. Buy land, buy bonds, buy buildings, foreign capital "pick up leaks"

In addition to buying stocks and bonds of real estate enterprises, acquiring properties and bidding for land are all ways for foreign and Hong Kong capital to lay out China's real estate in recent years. In the first half of this year, overseas capital, which had not been seen for a long time, returned to the Shenzhen real estate market. On May 23, Tishman Speyer and Frasers International jointly acquired the long-term rental apartment part of Shenrun Building, located at 1001 Shennan East Road, Shenzhen, a super grade A office building developed by China Resources Land. According to public information, Tishman Speyer and Frasers International are expected to invest a total of 727 million yuan to build the project into a high-end long-term rental apartment, Tishman Speyer is a world-renowned real estate developer, operator and fund management company, while Frasers International is an investor and operator of serviced apartments and high-end rental apartments.

Chen Xiao, a senior analyst at Zhuge Data Research Center, told Yan Finance and Economics that in previous years, long-term rental apartment institutions have exploded, and now they have regained the favor of foreign capital, on the one hand, it is related to the increase in support for the domestic leasing industry at the policy end, on the other hand, from an investment point of view, long-term rental apartments have stable income and strong cyclical resistance, which is a good choice for investors.

Also in the first half of this year, Singapore-based real estate investment management company Silk Road bought 680,000 koli in Shennan for 1.54 billion yuan, which is also a commercial real estate project.

Some investors in the industry said in interviews that the transaction prices of these two projects "have a relatively large gap" compared with the traditional understanding of Shenzhen property prices.

"This round of real estate adjustment has been superimposed on multiple factors such as the impact of the epidemic and economic transformation, and asset prices in some regions have returned to the level of a few years ago." Xiao Wenxiao, chief analyst of Kerry Guangfo region, told Yan Finance.

The decline in asset prices has naturally led to an increase in the rate of return on assets, attracting a wave of foreign and Hong Kong capital to "pick up leaks".

Many of them have even set up special funds to seek opportunities.

The Times reported that non-performing asset management company Lianbo Jiavo is planning to launch a non-performing loan fund in China to seek opportunities in due course. In August 2022, New World Group said that China's real estate has bottomed out and plans to invest 10 billion yuan in Shanghai, Hangzhou and other places in 2023.

In February 2023, CapitaLand established CapitaLand China Special Opportunities Partnership Programme (CCOP Programme). CapitaLand's website shows that the total committed share capital of S$1.1 billion will be used to invest in special opportunities projects in China.

The so-called special opportunity projects refer to the undervalued and undervalued projects in China's commercial real estate.

CapitaLand China Special Opportunities Partnership Programme has completed its first batch of acquisitions, including S$553 million (approximately RMB2.81 billion) to Beijing Suning Life Plaza and S$157 million (approximately RMB799 million) to acquire a prime logistics project in Foshan, Guangdong.

Located in the core business district of Chaoyang District, Beijing Suning Life Plaza is a 19-storey mixed-use project. Following CapitaLand's acquisition, CapitaLand plans to convert the original retail portion of the complex into a Grade A office building, adding 30,800 sqm of rental office space. According to media reports, CapitaLand used to acquire S$553 million for Suning Life Plaza, which is about 20% of its valuation. Previously, in October 2022, CapitaLand won the Borui Building in Beijing's East Third Ring Road at a seven-fold discount of RMB2.037 billion. CapitaLand is a diversified real estate group headquartered in Singapore with a focus on real estate investment and development. CapitaLand has always attached great importance to the Chinese market, not only acquiring commercial real estate projects, but also in the auction market. In April 2022, CapitaLand won two residential plots in Wuhan and Chengdu for RMB2.31 billion and RMB1.183 billion respectively. Both plots will be converted into prime residential projects. With the downturn of the real estate market, the land market is no longer hot with high premiums in the past; In the face of the cash flow crisis, many real estate companies have suspended their land acquisition around the country. This gives abundant foreign capital and Hong Kong capital "an opportunity". Hong Kong capital, which has rich experience in real estate development in the mainland, is particularly prominent. From 2021 to 2022, Dragonair China acquired a total of 4 residential land and 3 mixed-use land in Guangzhou, Yangzhou and other cities. Hongkong Land acquired a total of 8 commercial, mixed-use and residential sites; Yanlord Land has a total of 11 paintings. According to monitoring data from the Zhuge Housing Data Research Center, 48% of these bids are comprehensive land and 40% are residential land. More than half (60%) of the land was won at low prices, with 23% of land premiums ranging from 0% to 10% and 17% of land premiums above 10%.

2. Investment logic of foreign capital

Foreign and Hong Kong capital have made frequent moves in China's property market, Xiao Wenxiao said that this is fundamentally because there are more good opportunities, "Today, whether in the stock asset market or in the land auction market, enterprises have the opportunity to discover high-quality investment targets that were unlikely to be seen before."

Although asset prices in many regions have shown a bottom characteristic, foreign capital is not "all received", and they show obvious tendencies in the choice of investment targets.

Chen Xiao told Yan Finance and Economics that in the land market, foreign capital tends to acquire land in hot areas in core first- and second-tier cities, paying attention to the characteristics of asset preservation and appreciation; In terms of stocks and bonds, foreign capital tends to buy the bonds and stocks of insured housing enterprises at low prices and carry out short-term operations; In terms of the form of acquiring properties, foreign capital prefers commercial offices, logistics and industrial parks, and such projects have the characteristics of long-term holding and stable income.

From the perspective of investment cities, foreign-funded Hong Kong-funded enterprises are more inclined to acquire land in core first- and second-tier cities/Source: Zhuge Housing Data Research Center

Since the second half of last year, the voice of "foreign capital bottoming out the Chinese property market" has appeared one after another, but it is worth noting that from the perspective of acquisition, what foreign capital really treats is not the residential project that many people think.

According to data from Tongce Consulting Research Department, more than one-third of the projects acquired by foreign and Hong Kong capital since 2021 involve logistics and warehousing real estate. One example is when R&F Real Estate was under pressure to repay debt, Blackstone Group bought 70% of R&F's Guangzhou International Airport Integrated Logistics Park for 4.062 billion yuan in cash.

"They (foreign capital) believe that they can't be too pessimistic and can't kill all property types with one stick." Li Yujia, chief researcher of the Housing Policy Research Center of the Guangdong Urban Planning Institute, said. He believes that compared with some domestic market entities, foreign capital pays more attention to long-term perspective and has long-term investment value, which is the fundamental reason for foreign capital purchase.

Whether it is an office building, logistics park or industrial park project, it mainly relies on rent as income, and does not "return the capital" through a one-time sale.

At the same time, some insiders also believe that in recent years, foreign capital has not really increased investment in China's real estate market.

Southern Weekend reported that in 2019, the total amount of foreign capital participating in large transactions in China's property market was 81.1 billion yuan, which fell sharply to 47.1 billion yuan in 2020 and rose to 74.6 billion yuan in 2021. The actions of foreign capital have attracted attention, or related to the obvious rebound after the epidemic and the decline in the activity of local developers.

Real estate is a highly cyclical industry, so capital activity also swings with the cycle. In addition, there is a high threshold for foreign capital to enter the domestic real estate market, and investment activities are also affected by the tightening or relaxation of relevant policies.

In 2006, the Ministry of Housing and Urban-Rural Development and other six departments issued a "foreign restriction order", which prohibits representative offices of overseas institutions and overseas individuals from purchasing commercial housing that is not for self-use or self-occupied; In 2011, the Catalogue of Industries with Foreign Investment listed the real estate sector as an industry that restricted foreign investment.

However, in 2015, the "foreign restriction order" began to be relaxed; In 2016, the Ministry of Housing and Urban-Rural Development and other six ministries and commissions jointly issued the Opinions on Regulating the Access and Management of Foreign Investment in the Real Estate Market, allowing a certain amount of foreign investment to enter the domestic real estate market; The following year, the restrictions on real estate in the Catalogue of Foreign-Invested Industries were also removed.

Under the combination of policy relaxation and the decline in the RMB exchange rate, there was a phenomenon of foreign capital "buying, buying, buying" in China after 2018, mainly concentrated in commercial real estate in first-tier cities.

According to a report by CBRE Group, a commercial real estate consulting firm, overseas capital purchases accounted for 31% of the entire domestic real estate market in 2018, especially in Shanghai, where half of the largest property transactions were purchased by foreign capital.

In general, foreign capital is willing to invest, showing optimism about China's industrial economic fundamentals. For example, when the CCOP program was established, CapitaLand China CEO Pan Zixiang said that he was optimistic about China's strong economic fundamentals and would continue to seek opportunities to expand market share.

For foreign capital and Hong Kong capital, Xiao Wenxiao believes that foreign-funded and Hong Kong-funded enterprises that experienced the baptism of the financial turmoil in the late 90s of last century should be much more cautious in their development strategies, and did not participate in the "three highs" development model of "high turnover, high leverage and high debt" of mainland real estate enterprises during the period of rapid development of domestic real estate. Now, with their financial advantage, they are waiting for the opportunity again, and it makes sense.

However, no matter how the external environment changes, it cannot change the fact that investment and risk accompany it. Foreign capital has moved in and out of China's real estate market, some have made a lot of money, and some have left the market after being "trapped". At the table, there are wins and there are losses.