UBS plots national China welfare housing fund

After experimenting with a pilot vehicle in Shanghai, the Swiss bank is preparing the launch of a nationwide real estate investment fund that would be focused on providing state-subsidized housing.

UBS Global Asset Management, the real estate investment arm of the Swiss bank UBS, is gearing up for the launch of a public rental housing fund for China.

The size of the fund has not been finalized, but Trevor Cooke, head of global real estate for Asia-Pacific at UBS, told PERE that deal ticket sizes would be akin to infrastructure investing. “This strategy is amenable to investment sizes of $500 million or above,” he said.

Cooke added that UBS hopes to work with several of China’s municipalities to develop and manage these public rental housing assets.

The exact size of the fund would also depend on how much leverage its investors would be willing to work with. UBS will mostly be targeting domestic institutional investors which historically have preferred low levels of gearing. As such, Cooke said: “It would make more sense for this platform[‘s equity] to be larger rather than smaller.”

The initiative by UBS to introduce a real estate investment fund focused on meeting China’s housing shortfall began last month with a pilot vehicle aimed solely at Shanghai’s Hongkou district. The 10-year vehicle, believed to have been capitalized with about $100 million from a subsidiary of Hong Kong-listed insurance conglomerate China Taiping Insurance Group, has been deployed into a development of 1000 homes.  

While Cooke declined to confirm that fund’s size also he said it had performed well and that there was a waiting list of occupiers for the units which are expected to be available by Q1 next year. Qualifying occupiers typically would benefit from a state-paid subsidy of between 10 percent and 15 percent of the costs.

UBS is expecting core-style returns from the vehicle and has identified China’s yet-to-be introduced REIT market as one potential exit route.

“We have high conviction in this business model, as it is needed to help the government meet its housing targets and plug the gap for housing for working class families,” said Cooke, who referenced China’s latest Five-Year Plan's target of building approximately 36 billion units of public rental housing by 2015.