China Property

In response to a flood of defaults by developers caused by Beijing’s crackdown on speculation and a weakening economy, investors from Singapore and elsewhere are increasing their acquisitions of repossessed homes in China.

In the last three months of 2022, sales of Chinese distressed assets such as office buildings and factories touched a quarterly record of $1.93 billion, up 14% from the same time a year earlier and 73% more than in 2019, the first year MSCI collected such data.

According to MSCI’s director of Asia real assets research Benjamin Chow, foreign purchasing during current property slump in China has been more apparent than during previous ones. It was his contention that measures taken starting in 2021 to reduce leverage in the banking system were to blame for the surge of developer defaults.

In February, CapitaLand Investment, a company backed by the Singaporean government, created a 1.1 billion Singapore dollar ($820 million) fund to seek for deals in the Chinese commercial property market.

As developers continue to suffer a financing crisis, “the uncertainties in the property market over the last two years have created opportunities, especially in the special circumstances space,” Simon Treacy, CEO of CapitaLand’s private equity real estate division, told Nikkei Asia in late May.

According to court documents, in October CapitaLand paid 2.04 billion yuan ($290 million) for a Beijing office building that had been auctioned off following a default by Te Er Te, a subsidiary of Yongjia Group. There was a 30% markdown from what it would have been worth in 2021.

An executive with the buyer said that in January, a Singapore-based private equity manager with about $7 billion of assets under management signed a deal with a Taiwanese manufacturer to purchase a China bankrupt logistics facility.

We target struggling firms, the CEO said. “So if we explore where the majority of the pain is,” the author writes, “we are going to see selective possibilities for restoration and take over… underdeveloped or manufacturers facing bankruptcy.”

There is also interest from Western investors like Pictet Wealth Management and Brookfield Asset Management. Pictet’s managing director, Alexandre Tavazzi, made the comment in Hong Kong last month that foreclosed homes in China had “become quite appealing.”

“I believe there should be good opportunities to purchase assets at good values over the next five years,” Ronald Thompson, managing director of Alvarez & Marsal in Hong Kong, said.

According to MSCI’s Chow, however, other foreign investors have been less keen on investing in Chinese developments because of ” worries about long-term returns, especially given China’s lower trajectory when it shifts from its dependence on the real estate sector to boost their GDP growth.”