Few can deny China’s economy had a rocky 2022, and the repercussions for its real estate market were profound. But since Beijing opted to end its ‘zero-covid’ policy, confidence over a rebound is growing. That was the main takeaway from PERE’s recent China-focused roundtable, coverage of which is scheduled to be published in the print and online editions of PERE’s February issue next month.
Executives at the roundtable shared expectations of a boost to commercial and leisure activity in China after seeing travel restrictions end at the turn of the year.
Speak to senior executives at Hong Kong-based private equity real estate firm Gaw Capital Partners – which we did this week – and they will also share enthusiasm towards investing more meaningfully in the country where their formative efforts as a firm put them on private real estate’s map.
Indeed, there is a growing opinion that Chinese GDP growth will resume in earnest from its recent historic nadir of 2.7 percent in 2022, possibly aided by government stimulus. Gaw talked to us about how many institutional investors wished to join the ride.
But not all. It will take more than an economic bounce to lure some North American and other western investors back to China, evidenced by Gaw Capital’s agreement to offer certain investors a sidecar option for its latest pan-Asia fund, one that ringfences their capital from exposure to deals in the country.
In a first for the firm, it has agreed to accommodate the wishes of three or four institutions seeking to commit an aggregate $600 million, with a view to keeping its investor pool globally diversified. Goodwin Gaw, the firm’s founder, pointed out how politics are at the heart of this movement.
This represents another episode in an increasingly bifurcating world, a theme that extends much further than the private real estate market.
But what does it mean for Chinese real estate investment volumes by foreign investors? With international investors now having more access to the country, this year will provide telling answers.
What’s certain is that the market has to make up lost ground. According to MSCI Real Assets, Q4 2022 saw just $1.9 billion invested in the sector, down 86 percent compared to the $14.1 billion in 2019, just before the pandemic started. Within the more recent total, foreign capital accounted for more than half at $1.1 billion, but that was still more than 50 percent down on the quarterly amount international investors deployed into the country’s property market as recently as Q1 2021.
By Gaw’s reckoning, North American capital precluding itself from China could present an opportunity for investors from other regions. As such, the big picture might not change much from pre-Covid times. Indeed, he shares comparatively positive sentiment from other institutions in Asia and the Middle East, some of which have taken bigger positions in his firm’s offerings than before as a sign of their appetite.
It should also be pointed out that not all North American managers want out of China. Last week, PERE reported on New York-based Tishman Speyer’s $1.1 billion sale of an office campus near Shanghai to Singapore’s CapitaLand, a transaction that the US real estate investor regarded as business as usual. The firm subsequently shared with us plans to continue rolling out investment vehicles to provide international money access to the country, warm on the idea that its reopening should see investment follow.
So while there is a bifurcation occurring between western and eastern investors in their attitudes to doing business in the world’s second biggest economy, there is also a bifurcation within these factions. Do North American investors not want access to Chinese real estate? It depends who you ask. Will the market suffer as a result of less North American investment? There are those who would say not.