SHANGHAI — Chinese investors are abandoning an age-old attachment to property investment products and seeking returns in equities and other corners of the capital markets, as the authorities crack down on the debt-fueled property sector.
The flow of cash into property investment products issued by trust companies has slumped since September, as embattled property giant China Evergrande Group’s debt woes deepened.
That in turn is shutting one of the remaining funding channels for property developers who are already suffering from strict lending curbs onshore and record borrowing costs in the offshore bond market.
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“Previous investment logic has collapsed,” said Shanghai businessman Desmond Pan, who is considering shifting millions of yuan in property trust products into Bridgewater’s China fund called All Weather Enhanced Strategy.
Sifting through a brochure with billionaire founder Ray Dalio’s smiling face and a smooth and rising performance curve, Pan reckons the multi-asset fund, with an annualized return of 19%, is a suitable investment substitute.
Chinese investors have long had a penchant for real estate investments but the money flowing into property investment products has been shrinking in recent years since Beijing started to curtail shadow banking in 2017. Evergrande’s default on wealth management products (WMPs) in September, which triggered investor protests in many cities, only accelerated that trend.
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At the end of June, trust money that invests in real estate totalled 2.1 trillion yuan ($329.3 billion), down 17% from a year earlier. In contrast, trust products investing in securities such as bonds and stocks jumped 35% to 2.8 trillion yuan, according to the China Trustee Association.
RISKS GROW
The rotation of money picked up pace in recent months, with fundraising by property-related trust products slumping 38% in September from the previous month, and 55% in October, according to Use Finance & Trust Research Institute.
“Property-related trust products don’t sell these days, and we see clients step up shifting money into funds with relatively stable returns, such as fund of fund (FoF), and ‘quant funds’,” said a FoF manager at Shenwan Hongyuan Group, who declined to be identified as he is not authorized to speak to the media.
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Quant funds, or quantitative funds, employ software to automate investment decisions and often generate higher returns than bonds but carry less risk than stocks.
“Chinese policies are nudging capital away from real estate, which is absolutely positive news for the asset management industry,” said Jason Hsu, founder and chairman of Rayliant Global Advisors, which recently launched a multi-strategy hedge fund in China that uses quantitative analysis.
Shi Ke, a partner at Shanghai iFund Asset Management Co, a quant hedge fund house, agrees: “You need to cautious with property investment products. The risk of default is growing.”
According to Citi Securities, China’s quantitative private funds have grown to 1 trillion yuan ($154.6 billion) in recent months. That is almost 10 times their size in 2017.
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Besides trust products, real estate wealth management products sold through banks or independent wealth management companies have also suffered after defaults at Evergrande and more recently a liquidity crunch at developer Kaisa Group .
Jianda Ni, chairman of real estate-focused wealth management company Jupai Holdings, says there has been an irreversible shift of investment toward equities in sectors such as technology and new energy, and away from debt issued by developers.
The firm, which distributes products to fund projects by Yango Group Co, Kaisa and Guangzhou R&F Properties Co, said it continues to diversify its product line and introduce more equity, overseas and secondary market products.
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Rival Hywin Holdings Ltd, which distributes products to fund projects by developers including Evergrande, told Reuters in September it aimed to reduce its reliance on real estate by expanding new products and growing businesses offshore. When contacted for comment, it did not provide further details.
Liang Dongqing, head of wealth management service at China International Capital Corp (CICC), told a conference in October that while real estate remains the biggest component of the Chinese household balance sheet, the demographic and liquidity drivers behind China’s property bull cycle have gone.
“Guiding clients to shift some of their existing wealth away from real estate, and reallocate assets to share China’s future economic growth, represents the biggest opportunity for wealth managers over the next decade.”
($1 = 6.3776 Chinese yuan) (Reporting by Samuel Shen Additional reporting by Vidya Ranganathan in Singapore; Editing by Jacqueline Wong)
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.
MONTREAL – The Quebec Professional Association of Real Estate Brokers says Montreal-area home sales rose 9.3 per cent in August compared with the same month last year, with levels slightly higher than the historical average for this time of year.
The association says home sales in the region totalled 2,991 for the month, up from 2,737 in August 2023.
The median price for all housing types was up year-over-year, led by a six per cent increase for the price of a plex at $763,000 last month.
The median price for a single-family home rose 5.2 per cent to $590,000 and the median price for a condominium rose 4.4 per cent to $407,100.
QPAREB market analysis director Charles Brant says the strength of the Montreal resale market contrasts with declines in many other Canadian cities struggling with higher levels of household debt, lower savings and diminishing purchasing power.
Active listings for August jumped 18 per cent compared with a year earlier to 17,200, while new listings rose 1.7 per cent to 4,840.
This report by The Canadian Press was first published Sept. 6, 2024.
