Property of Temasek

Singapore-based CapitaLand’s interest in China’s real estate sector has evolved but remains unabated, as evidenced by the firm’s recent fundraising.

Despite doubts raised by some industry observers about the sustainability of the growth of China’s real estate sector, investors continue to direct new capital into the market. Notable among these investors is Singapore-headquartered CapitaLand Group, which announced this week the establishment of its second private equity fund targeting China’s real estate sector.

Liew: China is “mainstay” for growth

A recognised name among real estate investors in Asia, CapitaLand has developed residential and commercial properties in China for over a decade. CapitaLand, which is 55 percent owned by Singapore state investment arm Temasek Holdings, claims it has developed properties in China with total project value of nearly $2.4 billion (€2 billion) since entering the market in 1994.

The firm’s latest private equity fund, CapitaLand China Development Fund, raised a total of $400 million (€330 million), exceeding the size of its first China-specific fund, the $61 million CapitaLand China Residential Fund, several times over. Of the total amount raised, $150 million was committed by CapitaLand, $20 million came from co-marketer Citigroup Property Investors, and the rest of the capital came from international institutional and individual investors.

To date, CapitaLand’s investments in China have targeted the lucrative mid- and high-end residential housing industry in Shanghai, Beijing and Guangzhou. However, with its new China fund, CapitaLand intends to expand its range of activities to other high-growth areas, including the Bohai Gulf Region, Yangtze River Delta, Western/Central China and Pearl River Delta.

CapitaLand, which sees China as its “mainstay” for growth, is not alone in its expectations for continuing growth in the market, despite recent concerns of government-imposed anti-speculation measures. Other investors such as Singapore-based real estate developer Keppel Land have stated that they are bullish on demand in China’s residential markets, buoyed by what they see as the waning of these anti-speculation measures, which include property capital gains tax and higher mortgage rates.

Another unfolding issue is how the Chinese government will react to some investors’ desire to establish China-listed real estate investment trusts. In announcing the recent fund close, CapitaLand chief executive Liew Mun Leong also noted that the firm would like to structure a China-Singapore dual-listed REIT within the next year. According to a report from Reuters, Liew stated to members of the press in Beijing that China does not yet allow for trust structures and CapitaLand’s attempts to establish a China-listed REIT will be contingent upon the adoption of regulatory changes by China’s government, including clarification of taxation issues, acceptable debt levels, and types of real estate qualifying for inclusion in trust vehicles.

Regardless of whether China’s government adopts the requisite changes to allow for the establishment of REITs, investors’ interest in the country’s real estate sector shows few signs of abating. As long as perceptions of the market remain positive, resourceful investors will merely find other means of directing their capital into China’s real estate sector.