Real estate investment funds balk at entering residential market

09:21, July 14, 2010      

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Real estate investment funds are hesitant to set foot in the residential sector because of market uncertainties, and property developers are pursuing different financing channels.

"It is quite difficult to ensure dividend yields at present as the land price accounts for 60 to 70 percent of properties' value," Guan Boren, senior partner at ZY International Investment Management, told the Global Times Tuesday.

"We used to invest in residences around five years ago, when the plots were much cheaper," Guan said, adding that the company recently invested a tourist property project in Lijiang, and a commercial-residential combined project in Wuxi.

Guan said some residence developers come to them for investments, but "the problem is that huge institutional investors like insurance companies have not actually entered this sector."

Some developers began to set their sights on the real estate investment funds, as the China Banking Regulatory Commission tightened credit loans following the central government's home price suppressing policies earlier this year.

But Guan said "the foreign investors always prefer the developers who are not short of money to lower their financial risks."

An insider in a PE company in Shenzhen was quoted by the Caijing magazine as say-ing that his company found more investment opportunities recently than before owning to the macro-control policies, which caused developers capital strain.

"But there are only a few good projects we can invest in," the insider said, "The PE firms and developers have trouble working together, partly because PE firms have stricter financial risk controlling protocols."

In April, Gemdale Property and USlaunched the first real estate investment fund run by a developer on the Chinesemainland.

Their original plan was to invest in residential property.

Guan Boren of ZY International Investment said normally the real estate investment funds prefer the commercial properties with stable rental yields.

Source: Global Times


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