CBRE Plans to Make First China Housing Investment in 4 Years

CBRE Plans to Make First China Housing Investment
Construction workers leave the construction site of China Vanke Co.'s "Fun City" apartment complex on the outskirts of Beijing, China. China Vanke Co. is the largest Chinese homebuilder by market value. Photographer: Keith Bedford/Bloomberg

CBRE Global Investors, manager of $94.8 billion of real estate assets, may make its first investment in China’s housing market in four years in anticipation the government will start easing its property curbs.

The unit of the world’s largest commercial real estate brokerage is in talks with Chinese partners and local governments and plans to buy a site for residential development by the second quarter of next year, Greater China Country Manager Richard van den Berg said.

China this year raised the down-payment requirements and mortgage rates on some homes and imposed housing purchase restrictions in about 40 cities to help curb inflation and make housing more affordable. Europe’s debt crisis, which threatens to damp demand for its exports, may force the Chinese government to ease tightening, economists have said.

“We can already see that inflation in China is stabilizing,” van den Berg said in an interview in Hong Kong yesterday. “We might see that the government by middle or end of next year will start easing credit. For us, that means the fundamentals which are strong will then give a boost again to property pricing.”

Premier Wen Jiabao said two weeks ago the government will “firmly” maintain real estate restrictions. China’s home prices may decline as much as 30 percent in the next year, Barclays Plc said in a Nov. 8 report, and the government will likely “micro-adjust” or even reverse its restrictive policies if home prices fall beyond 20 percent.

Price Declines

The country’s home prices retreated for a second month in October, according to SouFun Holdings Ltd.

Los Angeles-based CBRE Global Investors acquired majority of ING Groep NV’s real estate investment business this year. The combined company has invested about $1.5 billion in 15 Chinese residential projects since 1996, most recently in Shanghai and the southwestern city of Chengdu toward the end of 2007, van den Berg said.

Local governments’ income from land sales has dipped in the last 1 1/2 years amid the central government’s tightening and as developers hold back land purchases.

Local governments are now offering more centrally located plots at prices lower than in 2010 or the peak of the market to finance infrastructure construction, Hong Kong-based van den Berg said. That contrasted with five or six years ago, when as many as 15 buyers could be vying for suburban plots where infrastructure had yet to be put in place, he said.

Longfor, Vanke

CBRE Global Investors usually jointly bids for land with a developer in China and then holds as much as 50 percent stakes of the development ventures, according to van den Berg. Its partners have included Longfor Properties Co., controlled by the nation’s richest woman Wu Yajun, and China Vanke Co., the largest Chinese homebuilder by market value.

It will seek residential investments in the country that can generate internal rate of returns in excess of 20 percent, compared with the 17 percent historical average, he said.

CBRE Global Investors prefers smaller cities including Changsha, Nanjing, Chengdu and Chongqing to the urban centers such as Beijing and Shanghai, where steeper price increases in recent years made housing less affordable, he added. It will focus on mid-end housing where price gains in the last 10 years have been outstripped by income growth.

CBRE Global Investors, which still has six projects under management in China’s housing market, has the option to push back construction of later phases to cushion the impact on sales during the downturn.

For projects with still a large number of remaining units, CBRE and its partners have sought to focus on the sale of less popular units at price cuts of no more than 10 percent to avoid offering more desirable units at lower prices, van den Berg said.

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