China is studying the possibility of investing a portion of its $3.4 trillion in foreign-exchange reserves in U.S. real estate, said two people with direct knowledge of the situation.
The State Administration of Foreign Exchange began the study after seeing signs of a recovery in the U.S. property market, said the people, who asked not to be identified as they weren’t authorized to speak publicly about the matter. China may acquire properties, invest in real estate funds or buy stakes in property companies, they said. The safety of the investments will be the top priority, said the people, who didn’t elaborate on a timetable or other details.
China has set up an operation in New York to make alternative investments in the U.S., an effort by the country’s foreign-exchange reserves manager to diversify away from U.S. government debt, the Wall Street Journal reported last week, citing people it didn’t identify.
Prices for single-family homes increased in 89 percent of U.S. cities in the first quarter as the housing market extended its recovery following a five-year slump. The median sales price rose in 133 of 150 metropolitan areas measured from 74 year earlier, the National Association of Realtors said in a report on May 9.
“In the long run it should be a good opportunity as the U.S. property market is gradually rebounding,” said Frank Chen, Shanghai-based head of China research at CBRE Group Inc. “It will help diversify the foreign reserves’ investment portfolio. Properties such as office building have stable yields, which match its investment strategies.”
The foreign-exchange agency, which also regulates the Chinese currency, didn’t immediately reply to faxed questions today from Bloomberg News seeking comment.
China Investment Corp., the nation’s sovereign wealth fund set up in 2007 to seek higher returns on part of the reserves, is adding stable-return assets, including infrastructure and real estate, as it cuts an “over-reliance” on U.S. debt, then-Chairman Lou Jiwei told a forum in Hong Kong in January. Lou was named finance minister in March.
CIC purchased Winchester House, leased by Deutsche Bank AG for its City of London headquarters, from KanAm Grund KAG, the seller announced in November. The fund also has 50 percent in a venture that invested in 15 logistic facilities in Japan with Global Logistic Properties Ltd. (GLP)
Sovereign wealth funds worldwide made 38 property investments valued at almost $10 billion in 2012, according to the Sovereign Investment Lab at Bocconi University in Milan, which has data going back to 1985. While less than the $13 billion spent on real estate in 2011, the deals were 21 percent of all sovereign-fund investments last year, the highest percentage on record and topping the 2011 high of 16 percent.
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