Foreign investors, including Singaporeans, are increasing their purchases of foreclosed properties in China as Beijing’s crackdown on speculation and a slowing economy result in a wave of defaults by developers. According to MSCI, sales of distressed Chinese properties, such as office buildings and factories, reached a record quarterly amount of $1.93 billion in the last three months of 2022, a 14% increase from the same period the previous year and a 73% increase from 2019. Benjamin Chow, head of Asia real assets research at MSCI, noted that foreign buying during this property downturn has been more significant than in previous downturns in China, linking the increase in developer defaults to policies implemented in 2021 to reduce financial system leverage.
In February, Singapore government-backed CapitaLand Investment raised a 1.1 billion Singapore dollar ($820 million) fund to seek opportunities in the distressed Chinese commercial property sector, highlighting the growing foreign interest in these properties. Simon Treacy, chief executive of private equity real estate at CapitaLand, said that the uncertainties in the market over the past two years have created numerous opportunities, particularly in the special situations space, as developers continue to face credit crunch. One notable distressed deal involved CapitaLand agreeing to pay Rmb2.04 billion ($290 million) for a Beijing office building sold at auction after a default by Te Er Te, a property management company owned by Dalian-based developer Yongjia Group.
This article is from Nikkei Asia, a global publication offering an Asian perspective on politics, the economy, business, and international affairs. The article features insights from both our own correspondents and external commentators. Additionally, our Asia300 section provides comprehensive coverage of 300 of the largest and fastest-growing listed companies from 11 economies outside Japan.
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In January, an unnamed executive from a Singapore-headquartered private equity manager with $7 billion of assets under management revealed that the firm signed a deal with a Taiwanese manufacturer to purchase a bankrupt logistics facility in China. The executive stated that the firm focuses on manufacturers that have been struggling, targeting opportunities to refurbish or even take over underutilized or bankrupt manufacturers.
Western investors like Brookfield Asset Management and Pictet Wealth Management have also expressed interest in these deals. Alexandre Tavazzi, Pictet’s managing director, stated in Hong Kong that distressed properties in China have become highly appealing to investors. Ronald Thompson, Hong Kong-based managing director of Alvarez & Marsal, which specializes in restructuring, believes there will be significant opportunities to purchase assets at favorable valuations over the next five years.
However, Chow from MSCI noted that other global investors have been more hesitant to invest in Chinese properties due to concerns about long-term returns, particularly as China shifts away from relying on the real estate sector to drive GDP growth.
This article is an adaptation of a piece originally published by Nikkei Asia on June 13, 2023. ©2023 Nikkei Inc. All rights reserved.
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