Foreign investors restrain from China amid crisis in real estate market

Following a severe crisis in the real estate market, foreign investors are restraining themselves from capital investment into commercial properties in China’s real estate market, reported Nikkei Asia.

Additionally, the remaining players of the country are pinning their hopes on traditional strategies in areas, including, environmentally friendly developments, Nikkei Asia reported.

Christine Li, the head of research at real estate consultancy Knight Frank told Nikkei Asia, “We have seen some concerns, particularly from the U.S.-based real estate investors. Five to seven years down the road, whether you can find a buyer to exit the Chinese market, is a big question mark.”

From January to June this year, cross-border deals in China’s commercial properties market were worth USD 3.3 billion which was down by 13 percent compared to last year.

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According to data from the investment research group MSCI Japan, despite showing a 35 per cent decline in such deals, topped the Asia Pacific market at USD 3.7 billion.

According to the Nikkei Asia report, US investors invested a mere 600 million yuan into China’s property market according to data compiled by MSCI. Though Singaporean capital logged an 80 per cent rise in the first half of 2024 from the previous year. It was still just over a third of its peak investment from the second half of 2019, when it had invested 22 billion yuan into mainland China’s market.

This downward trajectory creates a growing concern even among long-time investors in China.

Reportedly, China’s property market has been struggling since the government launched a crackdown, as it had rolled out policies to reduce property developers in the country from borrowing loans in 2020.

Evergrande which once stood as China’s biggest developer, is now close to liquidation, Nikkei Asia reported.

Additionally, the Chinese player currently shows little hope so far for offshore investors to recoup their costs, while several other private developers are being taken to court for windup petitions.

The collapse of the real estate market sector has damaged the confidence of Chinese families who had built their wealth over the past several decades, pinning their hope on the rise of property prices in China.

During the first six months of 2024, China’s overall property investments fell 10.1 per cent in value from the previous year.

Singapore’s sovereign wealth fund GIC which was consistently a top buyer in China’s property market, had previously warned that the country has “come to the end of its growth model” which relied on real estate and property development.

This triggered a perception among long-term investors of the positive potential of China’s property market. However, the investments have been “suddenly curtailed,” GIC Chief Investment Officer Jeffrey Jaensubhakij told Nikkei Asia.

Xavier Lee, an equity analyst at Morningstar, said, “Several Singapore real estate companies with committed projects in China will continue to invest and complete them. They are not expected to suddenly pull out. But we do not expect them to expand aggressively either given the challenging market environment,” he told Nikkei Asia.