Publications

- April 1, 2016: Vol. 8, Number 4

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Wise choices: Opportunities amid risks in Chinese real estate

by Thomas Au and Jonathan Hsu

Before investing in China’s real estate market, investors should mitigate around the three key risks facing the sector: the well-covered economic slowdown, the debt-laden real estate sector and the overwhelming supply buildup. Yet we anticipate the continued growth of China’s service sector to counter the effect of the slowing manufacturing industry, albeit not enough to lift growth back to breakneck levels. We also expect the impact of the debt-laden real estate sector to be company-specific and not sector-wide, and the impact of oversupply to be stronger and linger in Tier 2 or smaller cities.

Amid these trends, we believe investors could achieve reasonable long-term returns by:

  • Staying in Tier 1 and select Tier 2 cities where demand is broad-based
  • Having a sharp focus on asset-level drivers
  • Watching for opportunities from the increasing number of willing sellers

Service sector to grow as China slows down

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