Date
24 September 2017
Many developers have been forced to cut prices in the wake of weak demand, and some small players have failed, Photo: Bloomberg
Many developers have been forced to cut prices in the wake of weak demand, and some small players have failed, Photo: Bloomberg

Real estate PE industry to see major revamp as risks rise

The current housing market slump in China is expected to weigh heavily on real estate private equity (PE) funds, which have been financing property developers, with many smaller players likely to go out of business soon, the Economic Information Daily reported on Friday, citing an industry study.

The real estate PE fund market is already overcrowded, having grown more than 40 percent to 132 players last year, as it attracted people with no experience in the business because of the huge returns, according to a study by Zero2IPO Group, a service provider in the PE fund industry.

Real estate PE funds earned as much as 20 percent from developers, who were willing to borrow money at such high interest rates because soaring home prices more than offset the cost of funds, the report said, citing an industry insider.

But that’s no longer the case since the start of 2014. Data showed that contracted sales in terms of floor area fell 17.65 percent in the first five months from a year earlier. Many developers have been forced to cut prices in the wake of weak demand, and some small players have failed, leaving PE funds that lent them money with huge losses.

Zhang Guobao, president of Beijing-based Mutual Affluency Investment, said real estate PE funds have seen rising risks as demand continued to fall. As a result, his company has turned prudent and is now doing business only with big developers, the report said.

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