According to foreign media reports, the Canada Pension Plan Investment Board (CPPIB) announced on Tuesday that it will invest $250 million to establish a joint venture with Vanke, China's largest residential real estate developer, to participate in investments in the Chinese real estate market. Yesterday, Vanke confirmed this news on its official Weibo account, stating, "We warmly welcome our business partners from Canada."
The first investment will be in Qingdao City.
According to a report by Reuters yesterday, Canada's largest pension fund—the Canada Pension Plan Investment Board (CPPIB)—stated on Tuesday that it will invest $250 million to establish a joint venture with Vanke to invest in the Chinese real estate market.
The fund manager stated that this is CPPIB's first substantial investment in the Chinese real estate market since 2008. The joint venture will focus on developing residential real estate in first- and second-tier cities in China, with the first investment in Qingdao City, Shandong Province.
According to Graeme Eadie, CPPIB's head of real estate investments, in an earlier statement, the fund has invested heavily in commercial real estate and logistics in Asia, which will remain an important market for its real estate investments.
It is understood that the Canada Pension Plan Investment Board has a fund pool exceeding $205 billion, and it is expected to expand this venture capital in the future. The fund has initially committed to invest $250 million in Vanke over the next 18 months and retains the possibility of further capital investment.
CPPIB believes that the continuous growth of income in China, the gradual expansion of the middle class, and strong economic fundamentals will provide robust support for the demand for mid-range properties.
As of December 31, 2013, the Canada Pension Plan Investment Board had invested $23.4 billion in Asia, accounting for 11.6% of its investment portfolio.
Industry analysts believe that there are three main reasons for overseas funds investing in Chinese real estate: first, the generally low loan interest rates in various countries; even if the financing cost for Chinese real estate companies abroad is as low as 4%, it is considered high interest by overseas investors. Moreover, a financing cost of 4% is almost unattainable within the domestic banking system; second, there is still an expectation of renminbi appreciation; even if the appreciation may be limited, the upward trend can still bring certain returns to overseas funds; third, there are signs of recovery in the Chinese real estate market itself.
Overseas "business partners"
Regarding the collaboration with the Canada Pension Plan Investment Board to invest in Chinese real estate, Vanke's official Weibo account shared this news yesterday and commented, "We warmly welcome our business partners from Canada!" The concept of "business partners" has also become a key term for Vanke recently.
On March 15 of this year, Vanke's president, Yu Liang, publicly promoted the business partner system at Vanke's spring meeting, stating that this system is future-oriented and does not address Vanke's current issues but rather aims to solve problems for the next ten years.
According to Vanke's official statement, the partner system is more about binding the interests of managers with those of the company, providing greater motivation for the company's development. Yu Liang explained: "Business partners have four characteristics: we want to control our own destiny; we want to build trust back-to-back; we want to grow our business; we want to share our achievements."
Regarding the proposed business partner system, Vanke has only stated that it is still in the internal verification stage and has not yet been formally established or implemented, but a dedicated department named the "Trial and Error Working Group" has already been established to promote this mechanism.
According to Vanke's (000002) annual report released on March 6 of this year, the company achieved an operating income of 135.419 billion yuan in 2013, a year-on-year increase of 31.33%; the net profit attributable to shareholders of the listed company was 15.119 billion yuan, a year-on-year increase of 20.46%. The company's current real estate development projects are spread across 65 large and medium-sized cities in China and four overseas cities.