China is set to ‘rapidly evolve’ as a real estate market

Managers such as Schroders and Ares SSG expect investor sentiment toward China to change following the country’s reopening.

China’s reopening is fueling new optimism about real estate investment prospects in the country and wider Asia-Pacific region, according to the panelists speaking at the Hong Kong Venture Capital and Private Equity Association’s Asia Private Equity Forum 2023 in Hong Kong on Friday.

Calvin Chou, managing director at Invesco Real Estate, said Western investors were “completely unconstructive” toward investing in China at the end of last year. “I had done a series of client interactions toward the end of last year. And my observation was it had never been worse in terms of general attitude from North American investors and European investors,” he recalled.

Bryan Southergill, partner and head of real estate in Ares SSG Group, also received many calls from concerned investors about the situation in China last year. “But I think now with China opening, that’s [investor sentiment] going to rapidly evolve. And so whatever was true three months ago, based on the party congress and zero-covid, it is evolving super quick now. In some respects, China’s opening up more rapidly than Japan,” he pointed out. The country opened its borders with Hong Kong and ended its quarantine requirement for incoming travelers after almost three years of zero-covid policy on January 8.

If China continues to keep its borders open, “it’s going to be very, very positive for the economy, which is going to lift virtually every single real estate asset class,” said Christopher Heady, senior managing director and head of real estate Asia at Blackstone. “And then you combine that with more supportive policies from the banks. Again, that’s also very good for the real estate asset classes.”

Last week, a subsidiary of Chinese conglomerate Fosun International reportedly received a $1.8 billion loan from state-owned banks after the government said it would issue more credit to support struggling developers at the end of last year.

Other speakers said they believe the positive impact of China’s reopening would extend to the wider Asia-Pacific region. Andrew Moore, head of real estate, Asia Pacific at Schroders Capital, thought Hong Kong would be one of the first markets to benefit from the opening of the Chinese border. Indeed, Hong Kong had returned to the 2022 list of the top 10 most attractive cities for cross-border real estate investment after dropping out of the 2021 list, according to CBRE’s latest Asia Pacific Investor Intentions Survey.

“As long as the border between Hong Kong and China stays open, I think the bad memory of the lockdown and the travel restrictions and some of the other stuff that has happened will fade into the background,” he said.

He recalled Hong Kong had already been suffering from social unrest prior to the pandemic, and the covid lockdown had further dampened investment activity in the city over the past few years.

“But now it’s Hong Kong’s turn to emerge from lockdown,” Moore said.

In 2020, Schroders Capital entered Asia Pacific real estate market by acquiring a majority stake in Hong Kong-headquartered value-add real estate investment manager Pamfleet. Back then, the majority of Pamfleet’s $1.1 billion in assets under management was in Hong Kong. Today, the firm’s APAC exposure has expanded to Shanghai, Singapore and Tokyo.