Falling prices, dwindling transactions and property developers' discount offers may be frightening away individual buyers but seem to be attracting more international investors in the real estate sector.
International real estate service provider Jones Lang LaSalle said in a recent report
that some international groups have raised substantial capital for China property funds and are now deploying the money, while others are moving capital from less vibrant markets in North America and Europe.
The squeeze on bank loans and falling property prices, in fact, provide foreign investors with a good opportunity to enter the market.
Blackstone, one of the largest US private equities, in June acquired a commercial project in Shanghai for 1.1 billion yuan, the first time the company invested in China's property market. Other international funds, said industry insiders, are also looking for mature properties in key cities.
"We have received lots of inquiries from investors in the United States and Europe interested in investing on the mainland following a downward adjustment in property prices," said Malcolm Tam Yuk-cheung, a financial advisory leader at Deloitte China Real Estate Industry.
"They are looking both at opportunities to acquire a stake in a property company and to directly invest in projects," he said, adding these investors typically target an average 15 percent internal return rate before leverage.
Due to the credit crunch, industry experts say, mergers and acquisitions in China's real estate market are expected to reach a five-year high this year. Tam Yuk-cheung expects mergers and acquisitions deal values to grow 5 to 10 percent this year.
Dealogic, investment bank data provider, said the value of merger and acquisition deals involving mainland property last year was $21.01 billion, the highest since 2003. By June this year, 171 deals worth $15.29 billion had been announced, up 142 percent from the $6.31 billion spent on 123 deals over the same period last year.
