On May 24, Beijing witnessed the holding of 2016 BRIC Forum and the Fifth Global Real Estate Finance Summit (Beijing). The supply-side reform marks the formal transition from increment to stock in Chinese real estate market. Re-innovation becomes an issue of priority in the industry as our old model cannot adapt to the market and corporate demands. At the Summit, Mr. Xu Yafeng, the managing director of WINS (Tianjin) Investment Management Co., Ltd. briefed on the development trend of real estate fund under the new situations. Here comes his speech.

Firstly, Mr. Xu looked into the development trend of real estate in 2016.

He said that the current Asian real estate market is the product of easy monetary policies implemented by central banks of countries over nearly 8 years (after the financial crisis). Though the U.S. ended its quantitative easing policy, Japan and Europe are still providing liquidity for the market. Meanwhile, many Asian countries now adopt a lower interest rate over the past year. Though the loose currency period is waning to the close, there’re still many Asian and global institutional investors putting more funds in Asian real estate market and pursuing real estate assets in limited quantities, so in 2015, many countries experienced a rise in real estate price and decline in return on investment.

The survey indicated that Asia-Pacific real estate industry professionals slightly lowered their forecast index of 2016 real estate earnings in this region, showing the end of loose market period when dollar becomes stronger with a declined investment yield and the rising prudent mood in the real estate market.

Recently, authorities pointed out that Chinese macro economy has entered L-shaped development, so both market money supply and social financing scale are subject to constant increase under the loose monetary policy. From January to April 2016, M2 had a year-on-year growth of 13% and social financing amounted to 7.4 trillion, fueling continued growth in the real estate market; land kings sprang up in first-tier and second-tier cities, real estate price in some cities increased over expectation, but the actual demand of commercial housing in most cities was slowing down or remained in bottleneck status and selling rate in medium and long-term market was still under high pressure; first-tier cities saw active trading of bulk real estate with Shanghai and Beijing remaining as hot regions and the market was dominated by domestic investors, with insurance institutes, state-owned enterprises and domestic private funds as representatives; the actual user demand for commercial real estate suffered decelerated growth and capitalization rate experienced an obvious decline; while industrial logistics real estate remained in healthy development under strong demand.

By figures, tables and data analysis, Mr. Xu revealed that the strategic cooperation between large housing enterprises and medium and small real estate companies in real estate fund will be the main direction in the future, while the mode of financing plus agent construction as well as small stock trader will become a main choice of development projects. Large housing enterprises have more obvious advantages in development capacity, capital cost and assets management, etc.

He then analyzed cross-border real estate investment and allocation of international assets.

Recently, cross-border investments by Chinese investors in the major advanced economies are on the increase, with key regions including the US, UK, Europe and Australia; till the end of 2015, China’s foreign investment totaled nearly $30b, almost doubling in 2014, including its direct investment in the US commercial real estate of $15.1b (about 97.7billion Yuan), nearly half of the total in the past 16 years; in 2015, domestic real estate development investment amounted to 9.6 trillion Yuan, equivalent to only 1.37% of domestic investment if calculated as $20b for foreign real estate investment. According to Mr. Xu, this percentage is far below the normal market rate of 10-12%, so there’s huge space for development.

To this end, he proposed a reasonable path for Chinese cross-border real estate investment, namely selecting proper strategies and regions, seizing the initial market, choosing right partners, designing the transaction structure benefiting financial investors, thus to win trust and respect from the market, gain experience and reasonable profit in this period, build foreign platform, mature project channels and resource networks, and ultimately to become industry experts and access to abnormal return.

Mr. Xu raised 4 major potential trends in Chinese cross-border real estate investment, as below.

1) Continued climbing in aggregate investment. Developers and investors will benefit from relatively stable overseas market returns, related normal environment and market demand, and opportunities for international business and brand image.

2) Expanded scope. Increasing attention will be paid on investment opportunities in sub central regions in and surrounding cities of overseas portal cities.

3) Diversified models. Developers and institutional investors will continue to diversify and try investment on assets at various levels.

4) Professionalized team. A professional team is as indispensable as standing local partners. The team should be constituted by professionals from fields including real estate, tax, law and operation and familiar with local market and related policies.

Finally, Mr. Xu put forward that asset securitization would boost the stable development of real estate.

Chinese first-tier and key second-tier cities are stepping into the age of stocking houses, which underpins our asset securitization. Asset securitization is an important means to accelerate the turnover of corporate capital and realize operating exit of light assets. Deeply researching basic assets and designing an optimal structural plan for financial products will become the key of a successful financial operation in real estate.

Two suggestions were proposed in selecting direction and competitive advantage in targeted investment projects of asset securitization.

(1) Real right of real estate

Transferring the real right of real estate brings forth selling values, including CITIC Qihang and CITIC Capita Land Business Park Fund.

(2) Earnings gained from real estate

Operating earnings from shopping malls, office buildings, hotels, warehouse logistics and industrial parks including final housing payments and property 

In the end, Mr. Xu presented 4 core competencies of real estate fund during the market transformation, including financing ability, assets operation ability, investment ability and innovation breakthrough ability. The key of real estate finance and fund management lies in design and issuance capacity of financial products, investor relations and fund management.