Forum Partners Picks Bottom of China’s Property Investment Cycle

Forum Partners, a global property investment firm with $130 million invested in China, is planning a new pan-Asian fund to take advantage of a trough in the nation’s real estate market this year.

“What worries me most about China is that we’ll miss the window,” said Gregory Wells, a Hong Kong-based managing director at Forum, which manages about $4 billion of assets globally. “I think it’s a great time personally. Things have bottomed out.”

A recovery in China’s housing market, which has weighed on the nation’s economic growth, is expected to start in the second half after the government relaxed home-purchase and monetary restrictions. Home prices in first-tier cities, such as Beijing and Shanghai, may gain later this year as housing inventory decreases significantly, according to DBS Group Holdings Ltd.

“Developers are pretty smart so they’ve cut back on land purchases, construction starts” as sales declined last year, Wells said. “My guess is 2015 will be okay for us. But in 2016, as sentiment changes, there’s going to be less need for our capital” because the financing Forum offers is more expensive than traditional funding channels, he said.

Forum, based in London, has invested in a developer of industrial properties for domestic-focused manufacturers and a large-scale residential development by a private builder in the eastern coastal city of Fuzhou. The deals are in the form of structured debt, Forum’s preferred type of investment.

Funding Costs

Onshore funding costs for developers are starting to drop. China cut the benchmark interest rate on loans longer than five years by 25 basis points in February, following a rate reduction of 40 basis points in November. Builders are also issuing more onshore medium-term notes, which are cheaper than bank development loans, according to developer Country Garden Holdings Co.

A jump in borrowing costs spurred by missed payments on dollar bonds of developer Kaisa Group Holdings Ltd. provided more flexibility for Forum in pricing the capital it’s offering developers, who look at high-yield bond pricing as a metric, according to Wells.

Shenzhen-based Kaisa would become the first Chinese real estate company to default on U.S. currency debt if it doesn’t pay the late coupons this month.

Wells was previously at Deutsche Bank AG, where he built the bank’s commercial real estate business in Asia. Forum also invests in Australia, Korea and Japan in its Asia-focused funds.