China’s credit crunch comes as good news for London-based Forum Partners, which now plans to sell off Japan assets so it can devote more cash to the buying Chinese assets.
Brushing aside fears of a bubble, the $6 billion real estate investment firm plans to target as much as 60 percent of its $375 million Asian Realty Income Fund III to the China market. The group also hopes to raise a fourth fund, covering the entire Asian market, sometime later this year.
“The common view would be that China is heading for a bubble, and … that the safe haven for Asian real estate investors is Japan,” Forum Partners CEO Russell Platt told the media in Hong Kong recently. “The common view is wrong, and we’re actually quite constructive on China,” he added.
Encouraged by Tales of Chaos
With regard to the stories of developer collapses and bond defaults, Platt welcomes the perception that China’s property market is teetering on catastrophe.
“While the headlines in China may cause me some occasional sleepless nights, I am very happy to have the common perception be one of chaos and potential crisis in China because right now it is the kind of market where it is the best time to put fresh money to work,” the fund manager said.
The collapse of real estate developer Zhejiang Xingrun, which left behind RMB 3.5 billion in debts, raised alarm bells with many investors regarding the stability of China’s property market.
China’s conventional banks began cutting back credit to the real estate industry last year, and in the first quarter of 2014, the flow of capital through the shadow banking industry, which had arranged mezzanine financing for many developers, dropped by 49 percent.
While acknowledging that there were companies and communities facing real problems with their real estate markets, Platt asserted that Forum is able to work around these problems by working with developers that target lower-end, first-time buyers, rather than pursuing the luxury market. He also said that the company is looking for opportunities in China’s second-tier cities, where he believes prices are more reasonable than in the country’s largest communities.
Forum Partners decision stands in contrast to Harvest Real Estate Investment’s decision announced on Friday that it was closing down its operations target acquisition of assets in China, so that it could focus on helping Chinese investors acquire assets overseas. The fund management firm cancelled a planned $500 million China-targeted fund.