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Investors still keen on realty

By Hu Yuanyuan (China Daily)
Updated: 2008-09-09 10:05

Homebuyers at a real estate exhibition in Changchun, capital of Northeast China's Jilin Province. [China Daily]

Foreign investors are taking advantage of the cooling property market, rather than being put off by it.

Contracted investment in the real estate sector in Shanghai accounted for 27 percent of all foreign direct investment in the first half, double that for the same period last year, according to the latest Shanghai statistics bureau report.

"The number of investors, in fact, hasn't changed much. The higher transaction volume is mainly due to more attractive prices in this fluctuating market," said Eric Chan, deputy managing director of the Beijing branch of Savills, a UK real estate service provider.

Property price growth in China's 70 major cities has dropped for six months in a row, with shrinking transactions and tightened monetary policy putting pressure on property developers' cash flow.

"There is far more scope for foreign investors to negotiate a good price now, compared with a year ago," he said.

Industry insiders said Morgan Stanley is raising $10 billion for a global property fund and plans to put $1.5 billion or more of that into China, despite fears China's property market will slide further.

Other foreign funds, including Blackstone and Carlyle, are also looking for new investment opportunities in high-end residential and commercial properties in China.

Last month, sources told Reuters that Blackstone and others were vying to buy up to four commercial buildings in Shanghai for as much as $1 billion.

Another source with a major international property service provider told China Daily that a foreign investment fund would inject all its new capital into Beijing real estate in 2009, eyeing three projects in the office and retail sector.

"But the scale is not as big as that of Morgan Stanley," the source said, declining to give more detailed information.

Most transactions are offshore deals because of the strict controls on foreign investment in China's property market. Foreign institutional investors also take stakes in local developers to get around the rules.

"Offshore deals are the easiest to operate in practice," Chan said.

Despite uncertainties in the residential sector, office rentals are still likely to climb as multinationals expand amid limited supply, according to Carlby Xie, senior manager of research and consulting at Colliers International (Beijing).

"But interestingly, although there's more risk in the residential sector, the investors it attracts - who are usually from Singapore - are still interested," he said.

Some foreign investors are shifting focus to second-tier cities, as more investors compete in the bigger locations.