Gaw, Asia Green, SF REIT, MSCI See Consumer Sentiment Key to China Property Recovery

As investors stick to a “wait-and-see” approach to investing in mainland China’s property market, a rebound in consumer confidence will be key to an eventual recovery, according to a panel of top executives speaking at Mingtiandi’s Hong Kong Forum on Tuesday. Watch the full recording>>

Despite some favourable fundamentals such as low borrowing costs and high savings rates, China’s property market recovery remains fragile as consumer sentiment has yet to rebound, according to Andrew Goodridge, managing partner at Zurich-based private equity firm Asia Green Real Estate, who added that the market may not yet have reached the bottom.

“Consumer confidence for us is the most important,” said Goodridge. “Once consumers say, ‘I feel confident in purchasing a home,’ or ‘I feel confident to start my business now because the economy is growing,’ then I think that will be the key moment when the economy will really improve, which will improve the real estate sector, and that is key.”

The event, which was sponsored by Yardi, saw Goodridge joined on-stage by Humbert Pang, managing principal and head of China for Hong Kong-based private equity firm Gaw Capital Partners; Hubert Chak, chief executive of HKEX-listed logistics trust SF REIT; and Benjamin Chow, head of Asia real estate research at data provider MSCI.

Local Investors Fill the Void

Transactions are still taking place in mainland China despite the gloomy market, according to Chow, with most of the deals being executed by domestic investors. That contrasts with a dearth of deals in markets such as Australia, the US, and the UK, despite assets having been repriced in those markets.

“One thing we noticed about China is that transactions are still happening, whereas in a lot of other markets we have a standstill,” said Chow, who noted that deal volumes in Australia have plunged to levels similar to the 2008 financial crisis. “There is still a lot of investment, maybe not from global institutional investors, but certainly from domestic investors and fund managers…when transactions are actually happening, that helps with price discovery.”

That view was echoed by Pang, who pointed to Gaw Capital’s initiatives to establish additional RMB investment vehicles to further tap onshore liquidity. Gaw Capital has also participated in special situations deals in the mainland, with the fund manager having been part of a consortium of investors including PAG, Abu Dhabi Investment Authority, Mubadala and Ares which in March acquired 60 percent of Dalian Wanda Group’s shopping mall management business for $8.3 billion.

“The Wanda deal is a classic example of a Chinese developer or asset owner under stress, who have had to give up some shareholding in return for survival,” said Pang.

Despite the deal volume, Goodridge has not seen an abundance of distressed opportunities in the market, with the majority of assets that are coming to market showing signs of poor quality.

“We get this question from our LPs – can we now invest in distressed assets in China? To which our response is, there are not as many as you think,” said Goodridge. “While the market is in distress, it’s not the case that opportunities are everywhere. For example, an office building – prices have come down, but so have rents and yields. In addition, those assets that are available usually have a lot of issues – they have hair on their backs or they are collateralised to the hilt, and it doesn’t make any sense to come in even at a very, very low price.”

Beds and Sheds

The panelists highlighted pockets of opportunity in mainland China’s property sector, including logistics assets, driven by the growth of new e-commerce platforms, as well as the rental residential sector, which stands to benefit from favourable demographic shifts and policy tailwinds.

Chak, who oversees SF REIT’s portfolio of three industrial parks in mainland China and a logistics facility in Hong Kong, highlighted China’s southern region as the most favourable market for logistics investment, with that area home to the operations of China’s rising e-commerce stars such as Shein, Temu, and the e-commerce platforms of livestreaming companies such as Douyin.

“What has really been driving the growth of e-commerce and logistics services, and hence logistics properties, are some of the new cross-border e-commerce players – those companies are mostly based in southern China, so that is driving demand for logistics properties,” said Chak, adding that the electric vehicle, battery, and solar industries are also contributing to demand for logistics facilities.

In addition to logistics and rental residential assets, the panelists highlighted “new economy” sectors as showing potential, including life sciences facilities, AI-related assets such as data centres, and ESG and green themed infrastructure projects including charging stations and energy storage facilities.

“China is still one of the most important markets in the world,” said Goodridge. “This market still has all the fundamentals that you want for investment in real estate, so I think people should not discount that. Even though right now there is no positive sentiment, but it’s one of the most important markets in Asia and in the world.”

A Panel in Pictures