State-backed firms are new pillar in Beijing’s real estate market as private buyers retreat

China’s state-backed companies have stepped up their acquisition of large commercial properties in the nation’s capital to shore up the market, while private investors have retreated amid an industry slump, according to Savills.

They bought 5.8 billion yuan (US$811 million) worth of commercial assets, including shopping malls and office buildings, in Beijing in the first six months this year, a 46 per cent increase from a year earlier, according to data compiled by Savills, a real estate services firm. They outgunned private-sector buyers by 145 per cent during the period, it said.

The acquisitions followed back-to-back increases in 2022 and 2023, softening the blow on the mainland property market as the economy struggled for recovery momentum after the end of Covid-19 pandemic controls.

“The share of state-owned capital has been increasing year by year in the post-pandemic era,” said Ted Li, senior director at Savills Greater China. They have emerged as a pillar of certainty for the local commercial real estate market, he added.

The state-backed entities bought 11.9 billion yuan of such assets in 2022, an increase of 37 per cent from a year earlier, and loaded up 19 per cent more in 2023 at 14.1 billion yuan, according to Savills. Such investments by private investors fell 44 per cent so far this year, in addition to a 64 per cent slide between 2021 and 2022, it added.

Shanghai-listed Xinhuanet Co, which operates China’s official news agency, unveiled last week a plan to spend 1 billion yuan on extra office space in the National Financial Information Building located in southwestern Lize business district.

Xinhuanet will own about 20,000 sq m (215,280 square feet) on floors in the building, according to a stock exchange filing.

In June, state-backed China Life Insurance and Swire Properties agreed to buy a 64.8 per cent stake in Indigo Phase II in Chaoyang district from the debt-laden developer Sino-Ocean Group for 4 billion yuan. The transaction valued the asset at a 49 per cent discount to its market value, according to a local media report.

“The purchase prices for SOEs are very attractive, about 30 per cent to 40 per cent cheaper than three years ago, while the costs on loans are usually lower than their private-sector peers,” said Charli Chan, executive director of capital markets for Greater China at Cushman. “The SOEs believe it’s a good time to secure good assets, and deploy their long-term investment ahead of time.”

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This pillar of certainty partly stems from China’s policy, which requires SOEs to meet official quotas for projects in specific categories and assets that generate stable returns with minimal active management, according to Li.

State-backed investors and large institutional buyers favour owning build-for-rent apartments and shopping malls, as relatively high occupancy rates provide them with regular income and steady returns, he added. These assets are also liquid, allowing investors to list them as real estate investment trusts on local stock exchanges.

Whether state-backed investors will ramp up their investments in the second half remains to be seen. Their decision will depend on market conditions and projects that meet their threshold criteria.

Aside from some notable upticks in asset sales, Beijing’s commercial real estate market has remained relatively quiet, according to Jessie Xu, operations director of China and head of capital markets North China, JLL. It could get livelier in the second half, she said.

“The listing of high-quality assets will create opportunities for buyers to acquire at low prices,” she added. “Retail real estate leads the recovery this year, with rents rising and vacancy rates declining. This trend is expected to continue, potentially bringing good returns for institutions.”

Additional reporting by Yulu Ao