China real estate debt first appeared on investors’ radar several years ago but the convergence of several key trends this year has significantly enhanced the sector’s appeal as an investment play.

 

The initial economic slowdown resulting from the COVID-19 pandemic prompted many investors to reduce allocations to equity stakes due to higher downside risk. Many buyers have pivoted to debt opportunities, supported by the growing availability of real estate debt funds and products.

 

These events come at a time when Chinese developers, many of which are already suffering from cashflow problems due to a sharp decline in housing sales, face the prospect of refinancing RMB 8.3 trillion of interest-bearing debt over the next few years - a scenario that is driving a surge in requirements for development loans and mezzanine debt.

 

This ViewPoint by CBRE explains why the present market conditions offer a window of opportunity for investing in China real estate debt and identifies appropriate entry routes for investors considering pursuing this strategy.