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Foreign investors eye property

2011-03-30 09:32:59Source:Global TimesAuthor:

Foreign investors are expected to aggressively chase booming momentum in China's retail and office property market, as the torrent of onshore liquidity returns to pre-crisis levels and signs of domestic developers' financial strain emerge, a global real estate consultancy said Tuesday.

In 2010, en bloc real estate investment transactions, which are mainly retail and office properties, hit a record $15.02 billion, an increase of 34.6 percent compared to the previous year, Jones Lang LaSalle said in a white paper Tuesday.

Foreign players, especially those from other parts of the Asia-Pacific  region, purchased en bloc real estate assets worth a record $5.1 billion, eclipsing the $3.5 billion purchased in 2007, the white paper said.

Total investments from foreign companies located in the Asia-Pacific region last year accounted for 34 percent of all the transactions, compared with 12 percent in the previous year.

But last year total purchases by domestic investors decreased by 7 percent to $8.9 billion, which may be attributable to factors including "aggressive investors from Hong Kong and Singapore, the spillover effect of rapidly tightening residential market policies and a lack of clear direction from the government," Pang Shudong, head of Jones Lang LaSalle's Beijing Investment Team, said.

Unlike the office sector, where investors are primarily interested in the tier-one market, in the retail sector, investors are interested in well-located assets all over the country, the paper revealed. The public remains concerned over whether a bubble will build if too much hot money flows into the commercial property market.

"Retail and office properties are closely related to a city's basic economy including consumer consumption capacity – and no investors would purchase properties without examining vacancy rates," Xiang Songzuo, Renmin University of China's deputy director of its International Monetary Institute, said on Tuesday. And "if investors purchase properties with private funding rather than bank loans, the financial risks are under control," Xiang said.

At the end of last year, the State Administration of Foreign Exchange and the ministries of finance and commerce issued regulations indicating that foreign investment considered to be "speculative" may not receive government approval.

"In our view, currency appreciation has not been and will not be the major driver of real estate decisions in China, and investors have strong market fundamentals on their side, consequently we do not anticipate the government regulations will pose major obstacles in the year ahead," LaSalle's Pang said.

Though renminbi funds and their ability to invest in real estate assets still stand on ambiguous legal ground with regulations being developed on a pilot base in Beijing, Shanghai and Tianjin, "for foreign fund managers, raising capital onshore and then investing that capital in China and eventually offshore are their dreams," Pang said.