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Domestic fundraising for China private RE soars

Thanks to concurrent liberalizing policy for Chinese institutions and restrictive policy regarding investing in IPOs, capital raising from RMB denominated sources for private real estate investing ballooned 109% last year.

There was more than three times as much equity raised for Chinese real estate investment from domestic sources as there was raised from foreign investors in 2013, according to Beijing-based research firm Zero2IPO.

The firm said RMB-denominated funds collected $8.1 billion for private real estate investments last year, up 109 percent on the $3.9 billion collected in 2012.

The spike was thanks largely to a combination of more liberal investing policy for the country’s institutions and more stringent policy regarding initial public offerings for property companies.

Zero2IPO analyst Jessie Zheng said as property investing regulations set by Beijing had become clearer, more domestic institutions had become comfortable allocating larger pools of capital to private real estate.

She also said that China’s stock market remained subject to a moratorium on new IPOs intended to cool a heating stock market that started in 2012. That moratorium has gone on longer than widely anticipated meaning investors that had relied on stocks for income had been influenced to invest in the asset class privately.

“In property funds, the investors don’t need to wait in line like they do for IPOs, and it’s easier for them to get in,” Zheng told PERE. She added the dynamic of a locally-denominated fund was in keeping with domestic appetite for real estate as it is typically structured around a single asset and has a shorter life.

“For now, Chinese investors are more willing to invest in the RMB funds, because they can touch the returns coming in and look at exactly which project they’re buying into,” she explained.

Total fundraising for private real estate investment in China from both domestic and foreign sources almost doubled last year to $10.7 billion from $6 billion in 2012, the firm also said. That number reflected an increase to 132 funds raised last year from 94 in 2012. Four of the 2013 funds were foreign-denominated and the remaining 128 were RMB-denominated, as compared to five foreign-dominated funds raised in 2012 and 89 RMB funds.

Investment activity by Chinese property funds also doubled in 2013 to $6.3 billion, with RMB funds again taking the lion’s share of the activity. According to Zero2IPO data, RMB funds accounted for $4.9 billion, or 78 percent, of investment activity in China.