More than one year out and China’s property market still is feeling the effects of China’s credit crunch policies – that is the message heard by delegates at the PERE Forum: China in Shanghai last month. Meanwhile, most market participants also dismissed the possibility of a fast recovery for the domestic real estate industry in the near future.
Investors, fund managers and developers alike talked about adjusting to a different kind of Chinese property market, where lower growth is the new normal and just constructing buildings anywhere in the cities no longer will guarantee returns. Xu Xiaoliang, president of China’s Fosun Property Holdings, described the prior system as relying on “the three highs model: high land prices and a high cost of capital, which in the end led to high housing prices,” he explained. “This model, if it continues, will not be sustainable.”
In general, however, investors did not seem panicked over the changes. Indeed, Wei Wang, managing director and general manager at Ping An Real Estate Fund Management, called the volatility a “healthy correction,” as supply and demand is brought into better alignment. Though investors expect the correction to bring with it numerous opportunities, most have chosen to slow down their investment pace in China for the time being to select only the best of those opportunities.
Several investors also speculated whether this is just one more step on China’s journey to become more of a core market, with capital seeking longer-term yield rather than short-term capital gains. Seeing that kind of market emerge in China would, without a doubt, be enough to make many of the delegate’s mouths water. The general consensus, however, was that the Communist country still is missing several key ingredients, and no one was quite willing to put a time frame on how long it might be before those gaps were filled.
While core real estate might not have arrived yet domestically, Chinese investors are seeking such steady yields by venturing overseas. Just after the conference, PERE revealed that Ping An Insurance had set up an alternative investment division to facilitate its overseas allocations, and other investors and developers at the conference expressed greater willingness to invest in property in secondary markets and over a longer period. Chinese capital may be “the new kid on the block” in the international markets, but it appears to be learning fast.