As much as $9.8 billion in cross-border real estate investments were done in China in the first quarter of 2019 and the fourth quarter of 2018 combined, 2.5 times more than the $2.8 billion in the previous two quarters in 2018, according to data compiled by research firm Real Capital Analytics.

This rapid surge in foreign investor interest in Chinese real estate is largely in response to the increasing buying opportunities arising from the country’s ongoing deleveraging program. Industry observers, however, tell PERE these are limited windows of opportunities before the government slows down deleveraging.

“The window will at least be here for the next six months; in fact, we have a good number of foreign investors who are now wanting to extend their footprint in China, particularly in the Tier-one markets,” said Terence Tang, managing director, capital markets and investment services, Asia at real estate services firm Colliers.

Tang believes long-term investors remain confident about the prospects of the Chinese economy, which is why they are eager to break into the market before the window closes.

Just last month, for instance, Toronto-headquartered firm Brookfield Asset Management agreed to purchase Greenland Huangpu Center, a mixed-use complex in Shanghai. The asset, valued at $2.1 billion, will mark Brookfield’s biggest real estate investment in China to date, once the deal is officially closed. Other firms on the buying bandwagon include CapitaLand, which has completed some notable transactions in recent months. It paid 2.75 billion yuan ($408.2 million; €364.9 million) for Shanghai’s Pufa Tower from the debt-laden Chinese conglomerate HNA Group in January this year, shortly after purchasing Shanghai’s tallest twin towers for 12.8 billion yuan in November.

In total, around 29 deals have been done by foreign investors in China in the last two quarters, according to RCA’s data.  The average deal sized has also increased notably, from $151.5 million in Q1 2017 to $387.5 million in Q1 2019.

Chinese authorities first began the crackdown on over-indebted Chinese conglomerates to contain financial and economic risks in 2015. Many Chinese companies have traditionally been highly leveraged due to the easy availability of credit, partly supported by the once-thriving shadow banking system. The Chinese government has since started discouraging short-term funding and this, Tang explains, has forced many Chinese corporates to pay off debt obligations by selling existing assets.

“Right now, these companies are still trying to refinance, so they are selling their assets. And international investors are catching all these opportunities,” he added.

Tang also pointed out that foreign investors now have access to high-quality assets whose asking price has dropped to an acceptable range. Whereas in the past, local asset managers were willing to overpay for properties.

“The timing is good now because there has been less domestic capital in the market due to deleveraging,” agreed Paul Guan, partner at international law firm Paul Hastings.

This renewed interest in Chinese real estate also comes during uncertain economic times. Any further escalation of the ongoing trade war between the US and China threatens to weigh in on economic growth. Geopolitical friction did impact cross-border transaction volumes; RCA data shows a 73.3 percent drop in investments in Q3 2018. But the impact was brief, and the transaction volume bounced back more than eight times in Q4 2018. Investors regained their confidence after the two countries reopened negotiations in September 2018.

“Those who have a longer-term view on the market are prepared to ride these uncertainties,” explained Tang, when asked why the trade war has not had a material impact on investment sentiment.

But it is only a matter of time before domestic capital comes back to the real estate market. Given the Chinese government’s attempt to slow down deleveraging in the coming months, Guan believes the market will become more challenging for foreign investors with the resurgence of domestic buyers.

This March, Chinese premier Li Keqiang said at the annual National People’s Congress that the government was ready to introduce stimulus measures to fuel the economy. Just today, for instance People’s Bank of China announced that it will reduce the reserve requirement ratios of rural commercial lenders with less than 10 billion yuan of assets to eight percent. This will inject more liquidity into the market.