CBRE Global Investors is targeting 20% returns by investing in developments in mainland China, having raised $470m (€346m) from investors.
The global fund manager said it had close to $1bn investment capacity to develop mixed-used and residential projects in first, second and third-tier cities.
Richard van den Berg, who leads the company’s activities in China, told IP Real Estate that market conditions were more favourable today than they were one to two years ago.
He said average price corrections of 5-10%, combined with government market-cooling measures, had produced a “very good entry point”.
Concerns about the potential for a housing crash in China have increased in recent months, but CBRE Global Investors is confident it can generate attractive, risk-adjusted (leverage will be limited to 30-40%) returns by selecting the right geographical areas in the country.
“China is not one market,” he said. “There are areas where definitely you should not, at this moment in time, make any investments, but there are other areas where the fundamentals are very strong.
“In certain areas – especially the top end – house pricing has risen dramatically over the last five or 10 years. But on the whole the affordability in China has improved. The incomes of people have risen faster than the average house pricing.”
He added: “We have seen market corrections taking place on land pricing and on the pricing of completed units since the beginning of this year. We expect that these corrections will continue for the next one year or at least the immediate, foreseeable future. But we don’t expect very deep corrections.”
CBRE Global Investors will consider major markets like Beijing and Shanghai, but it is likely the fund manager will focus mostly on second-tier cities and third-tier cities. The latter would need to constitute satellite towns in the “influence area” of first-tier cities.
The company will enter into joint ventures with local developers. Van den Berg said this would be limited to “top-tier developers” and would follow a joint-venture model that had been successfully stress-tested during the global financial crisis.
“Our access to top-tier partnerships will improve,” he said, as developers’ “ability to raise funds is being squeezed”.
CBRE Global Investors was unable to comment on the identity or domicile of the investors that had committed capital to the strategy.