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Investors with a Preference for Greater China-Focused Real Estate Funds – November 2013

by Ee Fai Kam

  • 20 Nov 2013
  • RE

At the close of China’s Third Plenum last week, it was announced that China would be embarking on a series of economic reform in the years to come. From the relaxation of the controversial one-child policy, to greater rights for farmers over the use of their land and more flexibility in the household registration system, it has been a generally positive conclusion to an all-important meeting among China’s top political leadership. With such good news emanating from the world’s second largest economy, investing in China has become all the more compelling. At present, Preqin tracks 89 investors worldwide that have a preference for private real estate funds operating in Greater China. Together, this investor pool is worth $4.3tn and 6.1% is allocated to the real estate asset class alone.

The majority (34%) of the 89 investors hails from China; these are predominantly corporate investors joined by a few asset managers, insurance companies and wealth managers. The country with the second largest proportion of investors in Chinese real estate funds is the US. Forming 22% of the investor pool, they are mainly pension funds and foundations. Last month, Gaw Capital’s Gateway Real Estate Fund IV closed at more than $1bn with commitments from US-headquartered endowment and pension plans. South Korea-based firms, in close geographical proximity with China, make up the third largest (10%) group of investors interested in Greater China-focused private real estate funds.

With China being such a large country with various property markets at different maturities, which strategies are investors looking to invest in? An overwhelming majority (87%) of the 89 investors are interested in opportunistic real estate funds, while vehicles utilizing the value added strategy are targeted by 76% of the investor pool. Both fund types focus on real estate developments, which serve a burgeoning rural-urban migrant class as a direct result of the upcoming reforms. The traditional lower-risk fund types of core and core-plus attract 49% and 51% respectively of the investor pool. The expected opening up of China’s capital market is also likely to benefit the 48% interested in debt funds, as private capital takes on a more prominent role in the development of the country.

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