Interpac Business and Migration Solutions Melbourne Australia

(February 25, 2011)

China's latest round of measures to curb property price growth has had a negative effect on foreign institutional investors, industry experts said on Thursday.

"We've investigated a number of projects since the last quarter of 2010. Though reducing market liquidity has made the price of assets more attractive, the tightening regulations have made investment much more difficult," said David Edwards, regional director at LaSalle Investment Management, a US real estate fund with $45 billion under management.

As the amount of foreign investment flowing into China's real estate sector soared last year, the Ministry of Commerce ordered local authorities to halt approval of some foreign property investments to stop speculative purchases. Local authorities are also required to strengthen their reviews of foreign exchange inflows for real estate transactions and documentation for land rights.

Statistics from the Ministry of Commerce show that foreign investment in the nation's property sector rose 48 percent to $20.1 billion in the first 11 months of 2010, close to three times the 17.7 percent increase in the country's total overseas capital inflows.

An industry source said the housing ministry now regularly assesses the entry of foreign capital into the property market, in conjunction with the Ministry of Commerce and the State Administration of Foreign Exchange.

Edwards said there is still $1 billion outstanding from its $8 billion Pan-Asia real estate fund that was designed to be invested in Asia.

"We hope to see two to three deals to be signed in China within a couple of months. If tightened regulations forbid us to achieve these deals, we'll have to go to other markets in the region," he said.

In January, China launched its latest slew of policies designed to restrain property price growth, including raising the minimum downpayment for second-home buyers to 60 percent from 50 percent, imposing home-purchase restrictions in more cities and introducing property tax in Shanghai and Chongqing.

According to a managing director at one of the world's largest real estate funds, who declined to be named for reasons of market sensitivity, his investment strategy in China remains unchanged so far, as time is still needed to assess the effect of the new policies.

LaSalle believes that domestic transaction volumes and prices will pick up this year, particularly in the industrial sector. Commercial asset pricing is expected to firm up rapidly with new capital from domestic insurance companies seeking quality office and retail assets.

For Kenneth Tsang, head of Asia-Pacific Strategy at LaSalle Investment Management, the best investment opportunity is selective residential developments in the nation's second-tier cities, focusing on high quality projects and developers with proven track records.

"Domestic core investors in China should consider selective quality office and retail assets in first- and advanced second-tier cities, as long-term demand is strong while liquidity is surging," Tsang said.

Despite China's rigorous real estate policies, a number of international real estate funds are raising money, with an eye on China's property market.

The UK-based Grosvenor, which manages $16 billion in assets, aims to raise at least $270 million for a fund that will invest in Chinese properties as part of its expansion in Asia.

(Source: Chinadaily)