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singapore-investors-generated-rmb43-5-billion-investments-mainland-china singapore-investors-generated-rmb43-5-billion-investments-mainland-china

Singapore Investors Generated RMB43.5 Billion of Investments in Mainland China

27/08/2019
Singaporean investors have been particularly active of late, investing a total of RMB43.5 billion in mainland China over the last 18 months, significantly higher than the 10-year historical average of roughly RMB5 billion. 

In Q2, investment in mainland China’s commercial property market slowed 19% y-o-y to RMB40.2 billion (chart 1). Despite reduced investment during the quarter, over the first half of the year investment amounted to RMB125.8 billion, slightly up 3.3% y-o-y. Notably, Singaporean investors have been particularly active of late, investing a total of RMB43.5 billion in mainland China over the last 18 months, significantly higher than the 10-year historical average of roughly RMB5 billion. Investors from Hong Kong, the U.S. and Canada have also been quite active over the past year (chart 2).

Nevertheless, on the back of rising office vacancy rates and weakening rental growth in China’s Tier-1 cities, some other investors have also expressed growing caution, leading to reduced office investment in Q2 (chart 3). With economic uncertainty clearly impacting market activity, some cities, such as Guangzhou and Shenzhen, have rolled out office investment and rental reimbursement policies (for companies in selected industries and/or locations), with the incentives aiming to drive office absorption and boost investment.

Investment-into-GC-by-region-chart-600x246

On a positive note, investment activity picked up in core Tier-2 cities. In Q2, Tianjin and Chengdu recorded large retail investment deals totaling RMB7.9 billion and 2.2 billion, respectively. Benefiting from population growth and rising disposable incomes, shopping centers in prime locations of select Tier-2 cities are increasingly attractive to both domestic and foreign investors. In addition to ARA’s recent joint-venture investment in Chengdu’s Atrium Mall, Blackstone expects to complete its acquisition of Taubman’s CityOn portfolio this year, with two of the three retail properties located in Xi’an and Zhengzhou.

In addition, logistics properties remained highly sought-after given the sector outlook, restrictions on land availability and slightly higher cap rates (typically 5–6.5% across mainland China) in comparison to prime office properties. Notable transactions in Q2 included ICBC’s purchase of three Yupei logistics parks in Shenyang, Wuxi and Zhengzhou for a combined consideration of RMB755.3 million. E-commerce giant JD.com also recently established a JD Logistics Properties Core Fund together with Singapore’s sovereign wealth fund GIC with a total committed capital of RMB4.8 billion. The fund expects to complete the purchase of a number of logistics facilities from JD Property Management (JDPM) for RMB10.9 billion (with leveraging) before the end of this year.

Investment-into-mainland-China-by-cap-source-chart-600x221

Yet, the logistics sector is not without its challenges. A growing number of municipal governments in mainland China are enforcing ‘minimum tax requirements’ (already effective in cities such as Shanghai, Nanjing, Suzhou and Hangzhou) on newly acquired logistics sites. The actions suggest these new logistics centers may take longer to lease up as landlords become more selective in seeking tenants that can meet the minimum tax requirements.

Investment-into-mainland-China-by-property-type-chart-600x234

The above is an excerpt from the Greater China Capital Markets Express Q2 2019 report. To get the full data and insights on China’s latest market trends, download the report.

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