Foreign commercial real estate deals soaring

Overseas investors revealed greater appetite for mainland properties in 2018

Foreign investors have significantly increased their presence in China's commercial real estate sector, investing 78 billion yuan ($11.5 billion) last year, a record since 2005 and up 61.5 percent year-on-year, according to recent data.

Throughout 2018, commercial real estate transactions hit a record high of 251.7 billion yuan, up 4 percent year-on-year, according to a report on China's 2019 property market outlook by global real estate consultancy CBRE.

Foreign capital flows into the sector snowballed from 26 billion yuan in 2016 to 48.3 billion yuan in 2017, the data showed.

The central authorities' deleveraging campaign has tightened domestic financing channels and affected domestic investors' financing capacity, said Jim Yip, head of capital markets for JLL China.

International investors are embracing more opportunities to secure deals amid weaker competition from their domestic counterparts, said James Macdonald, head and senior director of Savills China research.

According to JLL's data, 56 percent of the nation's commercial property investment went to Shanghai, which is considered a stable and long-term investment destination among investors both from home and abroad.

Both of the two largest deals made by foreign investors last year took place in Shanghai. These were CapitaLand's and Singapore sovereign wealth fund GIC's purchase of Shanghai's tallest two towers at Harbor 55, and Blackstone's purchase of Mapletree Business City.

The former deal, which cost CapitaLand and GIC 12.8 billion yuan, is also the biggest single purchase CapitaLand has made in the Chinese mainland so far.

Blackstone's new property is an office and retail complex, costing 8.3 billion yuan.

Compared to 2017, foreign investors became more proactive last year, and they will maintain that momentum this year, said Yip with JLL.

CBRE also forecast foreign investors' spending spree will continue into 2019.

A total of $62 billion of implied investment volume will be deployed across the Asia-Pacific region in 2019-24, $35 billion of which will target high value-added and opportunist properties in the China market, said Xie Chen, head of research at CBRE China.

It is expected that in the short term, China will not expand financing channels for domestic real estate companies, but large companies will have the advantage in securing loans.

The government will allocate resources to improve the development in areas such as shanty town renovation programs, affordable housing projects and rental housing, according to Savills.

"Faced with high repayment pressure, domestic property owners are expected to have to offload their properties to pay down debt. The market is forecast to see a price correction in 2019, when sellers become more pressured to sell properties in the slow market," Macdonald said.

In addition to the conventional foreign capital investment destinations of Beijing and Shanghai, which attracted 85 percent of foreign investment in 2018, the newly opened Hong Kong-Zhuhai-Macao Bridge late last year will boost the Guangdong-Hong Kong-Macao Greater Bay Area by attracting more attention from property investors.

The integration and development of the Greater Bay Area is possibly the most exciting real estate opportunity in China, said a Savills report.

With a population of 67 million and GDP of $1.3 trillion, the Greater Bay Area is comparable with economic powerhouses such as the San Francisco Bay Area, with a population of 7.6 million and GDP of $800 billion, and the Greater Tokyo Area, with 44 million residents and $1.8 trillion in GDP.

Yet the Greater Bay Area will overtake both by 2030, when GDP is expected to hit $4.62 trillion and its population more than 100 million, according to the report.