The Real Deal Miami

Foreigners emerge as the new heavyweights in China’s commercial property market

Efforts to restrict lending in China added to the borrowing costs of Chinese companies and provided foreign buyers of commercial properties with a financial advantage
January 20, 2019 12:00PM

(Credit: iStock)

Foreign investors in China’s commercial property market are on a buying spree as high borrowing costs restrain domestic investors.

The volume of commercial real estate acquisitions in China by foreign buyers jumped 62 percent last year to 78 billion yuan, or $9.1 billion, according to brokerage firm CBRE.

That was the largest amount since CBRE began tracking foreign investment in Chinese commercial real estate in 2005.

China has been trying to deleverage its economy, which has boosted the cost of borrowing and restrained domestic demand for commercial properties, according to Sam Xie, CBRE’s head of research in China.

As a result, foreign investors in commercial properties “have an edge in financing,” Xie told Bloomberg, and the deleveraging drive in China means many domestic companies are more likely to sell than buy.

Among other factors holding down domestic investment in China’s commercial real estate are rules changes in late 2017 that limit the ability of private equity funds to raise capital for property acquisitions.

Outside of China, however, private equity funds that invest in Asian property raised $15.6 billion in 2018, market research firm Preqin Ltd. reported.

CBRE research shows that overseas firms last year accounted for 31 percent of 2018 acquisitions of commercial property in China for $10 million or more.

Foreign buyers may have accounted for as much as 40 percent of commercial property purchases in Beijing and Shanghai combined, according to brokerage firm Colliers International.

Xie told Bloomberg that the bulk of foreign investment in China’s commercial real estate is centered in Beijing and Shanghai, but foreign buyers also are shopping for income-producing properties in Hangzhou, Nanjing and Wuhan, especially rental apartments and logistics facilities.

Francis Li, head of capital markets in Greater China for brokerage firm Cushman & Wakefield Plc, told Bloomberg the trend probably will continue this year as foreign buyers remain “a sweeping force in China commercial property investments.” [Bloomberg]Mike Seemuth