Hong Kong, August 31, 2015 – CBRE Research recently launched the Four Quadrants Asia Pacific H1 2015, the first in a series of reports highlighting the “four quadrants”—private equity, public equity, private debt and public debt—as vehicles for real estate investment. The report provides a comparative outlook of relative pricing differentials and risk-adjusted returns that could impact investor decision-making in the region.
Ada Choi, Senior Director, CBRE Research Asia Pacific, commented, “reflecting on developers’ continued appetite for capital in the current strict banking lending environment, we have seen an upsurge in demand for bond financing, particularly by listed major players in China and Singapore, as well as a gradual but steady move by Chinese regulators to permit developers to access the domestic bond market.”
Private Debt: Internet-Based Crowd Funding Emerges as a New Channel in China
Interest rate policy has loosened further in H1 2015 to boost economic growth, with a number of central banks in the region cutting interest rates. Low-cost bank financing continues to be available in most developed Asia Pacific markets.
However, in emerging Asian markets such as China and India, banks retain stringent and conservative underwriting for development projects. This is creating opportunities for non-bank lenders to fill the gap. A new trend indicates that some Chinese developers are obtaining funding for development projects via internet-based crowd funding. Dalian Wanda used this approach to raise RMB 5 billion from individual and institutional investors in just three days in June 2015 to fund the construction of five commercial projects. More developers will adopt this approach to sourcing capital, but it will not become a major funding channel as the total amount of capital raised largely depends on the size of the developer.
Public Debt: Chinese Developers Lead in Bond Offerings
Real estate bond issuance was active in H1 2015, with total issuance reaching US$21.2 billion, 63% of the full-year total for 2014. Chinese developers displayed strong demand for bond financing, accounting for 63% of total bond issued H1 2015. Six companies issued notes worth over US$1 billion, reflecting their strong appetite for capital.
Chinese regulators are permitting more Chinese developers to access the domestic bond market. In June 2015, Evergrande received approval to launch a RMB20 billion onshore bond, while Longfor’s RMB8 billion bond issuance was also green-lighted. Both issuances are priced at a yield level of 5%.
Private Equity: Fund Raising Activity Expected to Remain Positive Across Asia Pacific
Private equity fund raising registered an uptick in Q2 2015 after a slow start in the previous quarter, bringing the total capital raised to US$5.4 billion in H1 2015. Well-established fund managers with strong track records have attracted the lion’s share of capital in the competitive fund-raising environment. Core-plus and value-added funds accounted for half of total capital-raising in H1 2015.
The outlook continues to look good for the remainder of 2015; however, the lack of investable stock will prompt more real estate funds to engage in structured debt deals as an alternative way to invest in the market. We’re seeing keen interest from opportunistic real estate funds seeking debt strategies, particularly mezzanine in key gateway markets. Secondary trading will pick up in H2 2015.
Public Equity: REIT Market Continues to Develop in China
The real estate public equity market experienced some volatility in H1 2015, with the FTSE EPRA NAREIT Asia Pacific Index recording growth of just 1.5%.
New regulatory changes in Asia are significantly supporting REIT market development. Penghua Qianhai Vanke REIT launched its IPO on June 26 and will be listed on the Shenzhen Stock Exchange. The REIT is a closed-end fund with the rights to receive rental income from Enterprise Dream Park, an office building in Shenzhen. It does not have the ownership of the underlying asset and instead has a 10-year fixed investment period on the property.
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.