China’s Property Downturn Offers Good Investment, CBRE Says

CBRE Global Investors, which has avoided China’s property market for the past five years, raised $470 million to invest in the country again as it seeks bargains amid a slowdown.

CBRE Global, with $90 billion of real estate assets, will invest primarily in retail and residential mixed projects, Greater China Country Manager Richard van den Berg said in an interview in Shanghai yesterday. The amount was the biggest the company has raised in Asia in almost a decade, he said.

After four years of government restrictions to cool the housing market, home sales and property construction are sliding and have become a drag on the economy, which expanded at the slowest pace in six quarters in the first three months of the year. CBRE Global hasn’t made any real estate investments in the world’s second-largest economy for the past five years, said van den Berg.

“These corrections will continue for another six months to maybe a year, therefore the entry point now is good,” he said. “We are not foreseeing a huge correction, but sufficient enough for us to take advantage for this period of time to re-enter the market.”

CBRE Global plans to invest the newly raised capital in nine deals over two years, van den Berg said. The majority of the investments will be in China’s less-affluent second-tier cities and satellite towns around Beijing and Shanghai, he said, declining to elaborate on how the the capital is structured because of regulation requirements.

ING Merger

There wasn’t enough capital to deploy during a transitional period after Los Angeles-based CBRE Global acquired a majority of ING Groep NV’s real estate investment business in 2011, van den Berg said in relation to why the investor waited for five years before re-entering the Chinese property market.

“We would have entered 2011 and 2012,” he said. “That would’ve been a good period of time to acquire land.”

China’s home prices rose 31 percent from 2009 to 2013, according to data from the national bureau of statistics. Even as the government started curbing the market in April 2010, home prices rose 24 percent in the 2010 to 2013 period.

The property measures are starting to show some signs of working. Home prices fell for the first time on a monthly basis in May since June 2012, according to SouFun Holdings Ltd., China’s biggest real estate website owner.

Stronger Fundamentals

Van den Berg said that the recent declines in prices have made it easier for CBRE Global to purchase land at a lower price than a lot of developers a year ago.

“The fundamentals now are stronger than they were in 2011,” said van den Berg. “Some developments, when prices are lowered 5 to 10 percent, you see huge interest. In 2011, even if you would have a price reduction of 20 or 30 percent, buyers wouldn’t come.”

Not everyone is as optimistic as van den Berg. Moody’s Investors Service revised its credit outlook for Chinese developers to negative from stable last month. Yu Liang, president of China Vanke Co., the nation’s biggest developer, said in May the “golden era” of property is over.

China home prices will fall 5 percent this year as developers cut prices to meet sales targets amid a cooling market, Standard & Poor’s said yesterday.

CBRE Global isn’t alone in seeing the recent slowdown as an opportunity to invest. Forum Partners, a global real estate investment firm managing $6 billion of assets, said in March that it is looking to invest in more developers in China as it bets on a recovery in the market within two years.

“We don’t see a sizable distressed market erupting in China in the foreseeable future,” van den Berg said, adding that CBRE Global “may get access to good assets, land or buildings owned by distressed companies and then with our partners continue to development.”

— With assistance by Bonnie Cao

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