Analysis: China's real estate woes sap property investment products
16/11/2021 08:31
By Samuel Shen and Vidya Ranganathan
SHANGHAI, Nov 16 (Reuters) - Chinese investors are
abandoning an age-old attachment to property investment products
and seeking returns in equities and other corners of the capital
markets, as the authorities crack down on the debt-fuelled
property sector.
The flow of cash into property investment products issued by
trust companies has slumped since September, as embattled
property giant China Evergrande Group's 3333.HK debt woes
deepened.
That in turn is shutting one of the remaining funding
channels for property developers who are already suffering from
strict lending curbs onshore and record borrowing costs in the
offshore bond market.
"Previous investment logic has collapsed," said Shanghai
businessman Desmond Pan, who is considering shifting millions of
yuan in property trust products into Bridgewater's China fund
called All Weather Enhanced Strategy.
Sifting through a brochure with billionaire founder Ray
Dalio's smiling face and a smooth and rising performance curve,
Pan reckons the multi-asset fund, with an annualised return of
19%, is a suitable investment substitute.
Chinese investors have long had a penchant for real estate
investments but the money flowing into property investment
products has been shrinking in recent years since Beijing
started to curtail shadow banking in 2017. Evergrande's default
on wealth management products (WMPs) in September, which
triggered investor protests in many cities, only accelerated
that trend.
At the end of June, trust money that invests in real estate
totalled 2.1 trillion yuan ($329.3 billion), down 17% from a
year earlier. In contrast, trust products investing in
securities such as bonds and stocks jumped 35% to 2.8 trillion
yuan, according to the China Trustee Association.
RISKS GROW
The rotation of money picked up pace in recent months, with
fundraising by property-related trust products slumping 38% in
September from the previous month, and 55% in October, according
to Use Finance & Trust Research Institute.
"Property-related trust products don't sell these days, and
we see clients step up shifting money into funds with relatively
stable returns, such as fund of fund (FoF), and 'quant funds',"
said a FoF manager at Shenwan Hongyuan Group, who declined to be
identified as he is not authorised to speak to the media.
Quant funds, or quantitative funds, employ software to
automate investment decisions and often generate higher returns
than bonds but carry less risk than stocks.
"Chinese policies are nudging capital away from real estate,
which is absolutely positive news for the asset management
industry," said Jason Hsu, founder and chairman of Rayliant
Global Advisors, which recently launched a multi-strategy hedge
fund in China that uses quantitative analysis.
Shi Ke, a partner at Shanghai iFund Asset Management Co, a
quant hedge fund house, agrees: "You need to cautious with
property investment products. The risk of default is growing."
According to Citi Securities, China's quantitative private
funds have grown to 1 trillion yuan ($154.6 billion) in recent
months. That is almost 10 times their size in 2017.
Besides trust products, real estate wealth management
products sold through banks or independent wealth management
companies have also suffered after defaults at Evergrande and
more recently a liquidity crunch at developer Kaisa Group
1638.HK . urn:newsml:reuters.com:*:nL1N2RW06K urn:newsml:reuters.com:*:nL1N2S000N
Jianda Ni, chairman of real estate-focused wealth management
company Jupai Holdings JP.N , says there has been an
irreversible shift of investment toward equities in sectors such
as technology and new energy, and away from debt issued by
developers.
The firm, which distributes products to fund projects by
Yango Group Co 000671.SZ , Kaisa and Guangzhou R&F Properties
Co 2777.HK , said it continues to diversify its product line
and introduce more equity, overseas and secondary market
products.
Rival Hywin Holdings Ltd HYW.O , which distributes products
to fund projects by developers including Evergrande, told
Reuters in September it aimed to reduce its reliance on real
estate by expanding new products and growing businesses
offshore. urn:newsml:reuters.com:*:nL1N2Q31HN When contacted for comment, it did not
provide further details.
Liang Dongqing, head of wealth management service at China
International Capital Corp (CICC), told a conference in October
that while real estate remains the biggest component of the
Chinese household balance sheet, the demographic and liquidity
drivers behind China's property bull cycle have gone.
"Guiding clients to shift some of their existing wealth away
from real estate, and reallocate assets to share China's future
economic growth, represents the biggest opportunity for wealth
managers over the next decade."
($1 = 6.3776 Chinese yuan)
(Reporting by Samuel Shen
Additional reporting by Vidya Ranganathan in Singapore; Editing
by Jacqueline Wong)
((samuel.shen@thomsonreuters.com; +86 21 20830018; Reuters
Messaging: samuel.shen.thomsonreuters.com@reuters.net))