Chinese investors, once among the most active buyers of commercial property in the United States, sold US$31.7 billion of US commercial real estate between 2019 and last year, 15 times more than what they acquired during the same period, according to MSCI Real Assets, a real estate and infrastructure data provider.
The divestment trend is expected to continue amid the high interest rate environment, leading to continuous declines in asset values in the US. Additionally, some Chinese investors are rushing to sell their foreign real estate holdings to free up cash as they face a worsening property crisis in China, according to analysts.
The largest sale occurred in 2019 when GLP, a Singaporean logistics company backed by a consortium of Chinese investors, sold industrial assets across multiple funds to Blackstone Real Estate Partners, amounting to US$18.7 billion. Excluding the GLP deal, an additional US$11 billion in assets were sold between 2020 and 2023.
In contrast, Chinese investors only acquired US$2.06 billion of commercial real estate assets from 2019 to 2023.
The disposals can be attributed in part to China’s capital controls and the implementation of lending caps in late 2020, known as the “Three Red Lines”, which aimed to reduce debt in China’s highly-leveraged property sector.
There was “a correlation between the rate of dispositions and the tightness of the domestic financing market”, Ben Chow, MSCI’s Asia head of real estate research, told the Post.
He said that disposals by developers increased after the implementation of capital controls in 2017-2018. After the Three Red Lines came into effect, “disposals gradually grew throughout most of 2021 and 2022”, said Chow.
The disposals were driven at first by the nationwide deleveraging campaign, but have continued due to a structural shift in the property sector, where supply outweighs demand, and homebuyer confidence is persistently low, said Shi Lulu, director of Asia-Pacific corporate ratings at Fitch Ratings.
“We are seeing quite a few Chinese property developers dump their ‘noncore’ assets overseas in a bid to relieve a liquidity crunch,” said Shi.
Chow expects Chinese investors to continue divesting assets acquired over the past decade. “Office values for a number of major US markets have fallen to 5-year or 10-year lows, so assets acquired from as far back as 2013-2015 could still be valued less than what they were acquired [for, especially] if they were refinanced at a higher value in between,” he said.
A sold sign outside a home in Aldie, Virginia, US, Feb. 20, 2024. Photo: Bloomberg
The US, the world’s largest commercial property market, has experienced an 11 per cent decline in prices since the Federal Reserve began raising interest rates in March 2022, erasing gains from the previous two years, according to a report from the International Monetary Fund released in January.
MSCI estimated the pool of distressed US commercial properties reached US$85.8 billion by the end of 2023, primarily driven by office assets facing weaker prices and higher lending rates.
Other factors contributing to the decline in Chinese investors’ interest in overseas assets include concerns about geopolitical tensions, particularly the war in Ukraine, according to Jason Bedford, a former China analyst with Bridgewater and UBS.
“Chinese investors’ appetite for Western assets may have taken a hit out of fears that in the future China and the US could have a similar dynamic to what we see today between Russia and the US,” he said. “That’s conversely increased the attractiveness of assets in certain [parts] of Asia that are perceived as safer [or] more neutral in the event of conflict.”
Chinese property developers are also offloading noncore assets overseas.
MSCI data reveals that Chinese companies became net sellers in Australia’s commercial real estate market between 2019 and 2023, with US$2.3 billion in disposals compared to US$1.7 billion in acquisitions. Similarly, in Japan, Chinese investors sold US$6.9 billion worth of assets during the same period, while acquiring US$5.7 billion.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
