When asked about potential bubbles in China’s real-estate market, Jack Foster, New York-based head of global real-estate investing at Franklin Templeton Real Estate Advisors, says: “China? We love it.”
What he means is he accepts the existence of property price bubbles in certain parts of the mainland’s market, but that these are minor affairs compared to the big-picture opportunity, which exists thanks to demographics.
The wave of immigration from the rural interior to cities and the coast has not run out of steam. If anything, there remains up to 300 million more people who will make this journey over the coming 10-20 years.
That will support the development of a large middle class and demand for better housing.
“The way the Chinese have run their economy is not comparable to the US,” he explains. “Beijing has been managing liquidity and not inflation. This has resulted in stable economic growth."
This management outweighs risks from potential micro bubbles in areas such as Beijing commercial property.
Moreover, China is an easier place to do business, Foster says. He says that while the country has long been open to foreign capital, there used to be uncertainties around repatriation and taxes. Today the situation is the reverse: it’s harder to get in the door, but rules on repatriating money are pretty clear.
Foster has been investing in real-estate funds for 25 years, of which he has spent 22 at Franklin Templeton. The firm now has a portfolio of over 80 property funds, as well as individual stocks.
To date, he says, never has one fund delivered negative returns, although he admits this year may see the first such case. Ironically, it’s an Asia property fund, but the region remains an overweight position for Foster.
“We haven’t made an investment in the United States for two years,” he notes. “Our focus is on Asia. The market here is not over-leveraged, and there’s economic growth.”