Despite a flurry of news reports questioning the credit worthiness of China’s real estate developers and raising the spectre of potential bond defaults, Switzerland’s biggest bank, UBS, is launching a new fund targetting residential opportunities in the nation’s second-tier cities.
In a story published by Bloomberg, Trevor Cooke, who leads the global real estate efforts at UBS Global Asset Management said that the bank is raising funds to invest in projects being developed by Shanghai-listed Gemdale Corporation (SHA:600383), one of China’s largest developers.
Cooke indicated that the bank’s first real estate fund, which targetted similar opportunities, and was set up in partnership with Gemdale, will yield “very close” to its targeted 20 percent return.
Searching for Opportunities in Second-Tier Cities
Slower growth in real estate prices in China’s second-tier cities in recent months compared to the country’s major urban centres has made many investors skittish regarding prospects for these real estate markets.
Recent cases of developers discounting projects in Hangzhou and Changzhou in eastern China have only added to the skepticism regarding development opportunities away from the first-tier cities.
However, in the Bloomberg interview, UBS’ Cooke appears confident that their team has the market figured out.
After completing a “very detailed, forensic look at the residential market, particularly in second, third tier cities, we’ve come back feeling pretty confident there’s a very strong and compelling case” quoted as saying of the prospects for the bank’s fund during a recent interview. UBS says that it is targetting a return between 16 and 18 percent for this new fund.