U.S. expert positive about growth of China's commercial real estate market

10:26, May 20, 2011      

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The long-term growth and development of China's commercial real estate market will continue and not likely to be affected by the recent tightening policy of the Chinese government, said a real estate investment expert in Chicago on Wednesday.

"The tightening policy is expected to cool down the residential sales market and land transaction market, but could benefit commercial real estate sectors, such as office, retail, industrial, hotel, etc." said Elysia Tse, vice president of Real Estate Portfolio Management/Risk Analytics at Blackrock.

She was a panelist at the finance panel of the Kellogg Greater China Business Conference to share her views on the investment opportunities and trends in China.

"The recent tightening policies have been focused on the residential market rather than the commercial real estate market. The Chinese central government is taking measures to moderate rising home prices and preserve housing affordability, not necessarily to interfere with the growth and development of commercial real estate market," she told Xinhua in an exclusive interview.

As a seasoned expert in real estate investment, Tse has held critical positions with three of the world's leading real estate investment firms including LaSalle Investment Management, Inc., Citigroup Property Investors and BlackRock Realty Advisors.

Currently she is part of the BlackRock team in developing the global investment strategy and conducting real estate market and risk analyses.

"In my personal opinion, the impact of China's recent tightening is expected be a near term obstacle and most likely limited to the residential sector," said Tse.

"It is tougher for developers to get bank lending for residential projects, particularly higher-priced range housing developments. Some small/medium size developers are expected to have some liquidity issues in the near term."

However, she believes that China's recent regulation to allow insurance companies to invest in the commercial real estate sector is expected to lead to more demand for institutional investment grade real estate products in China.

"As China's insurance companies develop their professional management teams to invest in real estate, more high quality commercial projects are underway," Tse said.

According to Tse, Chinese insurance companies are allowed to invest up to 10 percent of their total assets in property and property-related financial products with a restriction on investment in residential development projects.

"According to a report from Jones Lang LaSalle, this means that at the end of last year, insurance companies could invest up to 77 billion U.S. dollars in commercial real estate, given that total insurance company assets in China was over 5 trillion RMB (770 billion U.S. dollars) at the time. Going forward purchasing capabilities will only grow further as total insurance company assets in China are growing by 25 percent per year."

Regarding the market outlook for insurance companies, Tse explained, "Insurance companies are long-term investors and real estate is an ideal asset class in which insurance companies can invest in the long term to match their long-term liabilities."

However, Tse sees missing links in China's commercial real estate market today.

"Institutional investors, such as insurance companies, prefer stabilized assets with strong credit tenants. However, there are simply not that many tradable commercial real estate assets available in china for institutional investors to purchase," she said.

"So far in China, a limited number of buildings in Beijing and Shanghai are considered truly institutional investment grade quality. As a result, we have now seen some assets traded a few times over the past 1-2 years leading to substantial cap rates compressed in these assets," Tse told Xinhua.

The real estate expert also predicted that in the long-run, professional asset management will be needed in order to maintain or add value to the buildings, particularly.

She further explained the reasons behind, "China has seen a plethora of construction over the past 10-15 years and as a result many commercial properties in the country are still very new. Many of these new properties are well functioning and are not in need of intense asset management and regular maintenance."

"The concept of professional asset management has not yet expanded to property owners outside of those institutional grade buildings," she added.

Source: Xinhua
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