Foreign investors are shying away from deploying capital to commercial properties in China’s beleaguered real estate market, with the remaining players pinning their hopes on niche strategies in areas such as environmentally friendly developments.
For the January to June period this year, Chinese families into China’s commercial properties — which includes offices, industrials, hotels, retail and apartments — totalled $3.3 billion, down 13% from a year ago, according to data from investment research group MSCI. Japan, despite showing a 35% decline in such deals, topped the Asia Pacific market at $3.7 billion.
During the period, Singapore investors, who are less affected by current geopolitical headwinds and have long experience in China, remained the top overseas buyers in the country’s commercial estates, excluding Hong Kong. Capital from the city-state amounted to about 6.9 billion yuan ($1 billion) in the first six months of 2024.
U.S. investors invested a mere 600 million yuan, less than a tenth of Singapore’s total, according to data compiled by MSCI. Though Singaporean capital logged an 80% jump in the first half of 2024 from a year earlier, it was still just over a third of its peak in the second half of 2019, when it channelled 22 billion yuan into the mainland market. The lower trajectory reflects growing concerns even among long-time China optimists who have invested in the market across cycles.
China’s property market has struggled since the government launched a crackdown, as it rolled out policies to curb property developers’ borrowing in 2020. Evergrande, once the country’s biggest developer, is now in liquidation with little hope so far for offshore investors of recouping their costs, while a number of other private developers are being taken to court for windup petitions.
The collapse of the sector dealt a huge blow to the confidence of Chinese families who had built wealth over the past decades betting on rising property prices. During the first six months of 2024, China’s overall property investments fell 10.1% in value from a year earlier to 525.3 trillion yuan.
China’s structural challenges have pushed some investors to shift their focus in the country. Singapore’s Keppel Corp., which counts city-state-backed Temasek Holdings as its largest investor, said it has been pushing to “de-risk” its portfolio from China over the past few years.
Weak demand for offices is likely to persist in Beijing, and recovery there depends on the macroeconomic environment, the trust said in its quarterly report on July 30. While new supply in Japan is resulting in lower rental costs, the country’s consumption is likely to see a boost as real wages grow. Despite the difficult conditions, some believe it is actually a good time to enter the market, with prices attractive.