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Gearing up for a new era of domestic capital


​Commercial real estate investment in China had a record year in 2015, with the total value of transacted assets reaching approximately RMB 150 billion. It is just the latest sign of torrid growth in the country’s commercial property investment market. The total size of China’s institutionally invested real estate universe in 2015 was estimated to be second only to that of the U.S. at approximately US$ 800 billion.

Behind rising transaction volumes lies the growing prominence of domestic money. Domestic capital has accounted for the lion’s share of investment in China’s commercial real estate for much of the past decade, and comprised three-quarters of activity in2015. This means that domestic investment has driven most of the uplift in transaction volumes, all while expanding Introduction strongly itself with a compound annual growth rate of 15.4% over the past eight years. Domestic capital’s rapid growth has, in turn, been supported by a range of savvy actors including private equity funds, corporates, state-owned enterprises (SOEs) and insurance firms. 

Given the escalating size of China’s real estate investment universe and improving market transparency, investment activity is set to expand further in the years to come. Foreign investors will no doubt continue to increase their footprints across China, but it will be domestic players that still provide the greatest contribution. We believe that the following five trends will pave the way for domestic investors to carry on driving investment volumes to structurally higher levels.

  1. SOEs are poised to become significant sellers in the market: With future SOE reform expected to break up real estate holdings of inefficient state-owned firms, further opportunities will emerge for acquisitions and the repositioning of assets.
  2. Chinese insurers are likely to emerge as some of the largest buyers domestically and globally: China’s deregulation has allowed domestic insurers to become one of the most active groups of institutional players. As insurance companies grow more experienced with real estate investment, JLL anticipates their investments will expand and even accelerate in the years ahead.
  3. Chinese private equity funds will expand their footprints: China’s real estate private equity (REPE) has the potential to develop significantly, and could even receive a boost from the activity of its domestic insurers. 
  4. Securitisation is set to catalyse the next wave of investment activities: The Chinese government has been testing the concept of securitisation through numerous pilot programmes across the country for years, and the role of securitisation will grow as the government improves tax and regulatory clarity.
  5. Innovative methods will supplement mainstream investment channels: Applications like crowd-funding and peer-to-peer lending are just two examples of technology-enabled innovations in the real estate investment sphere. JLL expects certain technologies to be embraced even faster in China than they have been in the West.

​China’s real estate market has expanded rapidly over the past several years and is likely to maintain a swift pace going forward. At the same time, we are seeing a greater diversity of domestic actors accumulating both the size and experience to build, purchase and sell real estate assets on a previously unmatched scale. Both these forces will combine to continue driving China’s commercial real estate transaction volumes higher. We expect to see 2015’s record broken several times in the years ahead, with domestic capital still providing most of the momentum.​

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​>>>​Click to read the news - China Real Estate Investment Report 2016: The Rise of Domestic Capital​​
​>>>Click to view the infogra​phics of the JLL 2016 China Real Estate Investment Report​
​>>>​Click to watch the video of JLL 2016 China Real Estate Investment Report

​>>>Click to view more JLL Research​

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