Asian institutional investors are shunning China real estate
Institutional Investors and family offices who flocked to China’s real estate market last year look set to desert it in 2024.
China's real estate market attracted the highest investment in the Asia Pacific region in 2023, receiving $37.5 billion surpassing investments in Japan's market, which totaled $36.9 billion, according to MSCI RCA's Asia Pacific Capital Trends report.on February 7.
But not a single Asian investor has placed China’s Tier 1 cities in their top ten preferred locations for 2024, according to the investment intentions survey 2024 Asia Pacific, published by the Asian Association for Investors in Non-listed Real Estate Vehicles (ANREV) recently.
It found that Asian investors’ plans to shun the region stood in contrast with those of European investors: 27% of European respondents to the ANREV survey placed China’s Tier 1 cities in their top ten preferred locations.
At a global level investor sentiment on Greater China is turning fast.
Only 19% of investors viewed China’s Tier 1 cities as preferred investment locations, with just 11% saying the same of Hong Kong, which tied with India as the least popular target for real estate investments in 2024.
GOVERNMENT STIMULUS
The failure of the government to address China’s failing real estate sector is a particular concern for investors, many of whom are already pulling allocations from real estate markets.
Landmark Family Office
“We do still need to see resolutions in the China’s property market … China will likely remain an avoid until we see the sector solve its problems,” said Andrew Sharrock, chief investment officer at Landmark Family Office.
Sharrock noted that, while price falls across Asian private markets had improved buying opportunities in many locations, the prospects for the sector in China remained weak.
James Macdonald, head of research and consultancy at Savills China in Shanghai pointed to the serious headwinds faced by China’s real estate sector.
Savills
“We have seen more foreclosures on residential properties and more auctions instigated by creditors of commercial assets. Developers remain cash strapped as many credit channels remain closed to all but the biggest/best developers, while sales volumes remain down significantly – a key source of cash flow,” he said, although he noted non-performing loans had not increased significantly, according to official data.
Nancy Curtin, Global CIO at AlTi Tiedemann Global, a multi-family office and discretionary wealth manager with $49 billion in assets under management, said that Beijing’s handling of China’s property market was crucial to the future appeal of the country.
AITI Tiedemann Global
“Hopes for the coming year are mostly pinned on the government’s promises of more fiscal and monetary stimulus and property support. We think that stimulus needs to be directed at the consumer and restoring consumer confidence in the property market,” she said, adding that she remained “cautious” on China as an investment location currently.
bfinance
AlTi Tiedemann Global's clients, most of whom are based in the US or Europe, have total portoflios of between $25 million and $1 billion in size, of which between 5% and 15% is typically allocated to real estate.
“China seems to be off the radar for most real estate investors right now, for an obvious range of reasons,” said Peter Hobbs managing director of private markets at bfinance in London, noting that ABC (‘Anywhere But China’), had become a popular acronym among investors.
CONTRARIAN
To some investors, however, the fact that China’s real estate woes have already fed through to low valuations, in a region where prices remain stubbornly high, is drawing them into investments.
Raffles Family Office
“China remains a hotly debated market which attracts polarised views thought we are still skewed towards its longer-term prospects as it represents a sizeable portion of APAC's investible universe,” said Joe Kwan, managing partner, at Raffles Family Office in Singapore.
He noted that discount levels in China and Hong Kong, as well as other APAC markets, had been driven more by sentiment than fundamentals, providing investors with good buying opportunities.
“Hong Kong, despite all the recent issues, remains a key gateway city to Asia. The larger-than-normal decline in valuations is revealing substantial opportunities notably in the hospitality sector. As tourism pick up, there will be growing buying interest in this segment, at least in 2024,” he noted.