Putting politics aside
Foreign investors could be forgiven for being spooked by escalating geopolitical tensions between China and the West over the last four years, which has manifested itself most recently with the EU and China’s failure to ratify the Comprehensive Agreement on Investment. But it is clear throughout this report that private capital is looking beyond the politics and staying focused on business, tapping into the vast opportunities that China real estate offers.
“US and European businesses all want to continue to engage with Chinese enterprises and to have access to the Chinese market,” says Tommy Wu, lead economist at Oxford Economics.
When it comes to waging the war against covid-19, China has beaten the West hands down. Yes, the Chinese economy and businesses were put under stress in the early days of the pandemic. But a strict lockdown in the first quarter of 2020 allowed the country to return to normality far quicker than most other nations.
Consumers have returned to shops, workers to offices and overall market sentiment is optimistic as the country’s GDP bounced back and is expected to grow further in 2021. That upbeat mood is spilling over into the real estate market. The “recovery has been good for investor confidence,” observes CPP Investment’s managing director Guy Fulton.
The numbers prove it
There is data aplenty to support the thesis that covid and hostile political rhetoric have not negatively impacted private capital flowing into China real estate. Allocations to China-focused funds grew from $2.05 billion in 2019 to $3.9 billion in 2020, according to PERE data. The only caveat is that a much smaller pool of funds are the recipients – five funds closed in 2020 compared with 13 in 2017 and 25 in 2013.
Recent CBRE data is a further indication of confidence, with 57 percent of investors surveyed reporting they intend to buy more China property in 2021, up from 42 percent in 2020, with only 11 percent saying they intend to buy less property in 2021, down from 22 percent in 2020.
International political tit for tats are also not impacting Chinese capital’s propensity to invest overseas; outbound capital increased by 32 percent between 2019 and 2020, according to Real Capital Analytics data with Hong Kong the top destination followed by Poland.
Structural trends drive sector preferences
Demographics, urbanization, changing consumption habits and a growing reliance on technology and digitalization is shifting investor preferences toward some property assets over others, with logistics the current top choice – 47 percent of investors named it their favored sector in 2021, up from 33 percent in 2020, according to CBRE data.
A rapidly urbanizing population coupled with young professionals unable to afford to buy homes is making the multifamily rental and co-living sectors ones to watch in the years ahead. And the global pandemic has fueled the digital economy, which has many investors salivating over growth opportunities in niche sectors, with data centers in particular at the top of institutions’ hit list.
Progress is slowly being made on ESG
China remains the world’s biggest polluter, responsible for around 28 percent of the world’s greenhouse gas emissions. But President Xi Jinping has pledged to make China carbon neutral by 2060.
ESG is already rising up the agenda in the domestic real estate sector, among both tenants and owners. Sanne Group’s managing director, Asia-Pacific, Jing Jing Qian, is “starting to see funds with a specific ESG remit.”
And a recent CBRE Investor Intentions Survey found that 48 percent of investors have either already adopted or will adopt, in the next three to five years, ESG criteria in their investments.
Only 17 percent report they are unlikely to do so.