In recent times, an increasing number of foreign investors are opting to endure substantial losses by selling their properties in China, as they find themselves trapped in a stagnant Chinese real estate market that makes it difficult to recoup their investments. This trend may further exacerbate the economic pressure on China.
According to a report by Bloomberg on Monday, investment management firms including BlackRock and KKR have been selling commercial real estate assets in China at prices significantly lower than their purchase costs since the end of 2024. This has resulted in losses for the banks that provided financing for these assets.
Traders and bankers are indicating that more and more global investment institutions are contemplating divesting their assets in China.
HSBC, Standard Chartered Bank, and other lending institutions have issued warnings that default rates on their real estate loans in China are expected to rise.
Over the past 15 years, foreign buyers have invested nearly $140 billion in office buildings, warehouses, shopping centers, and data centers in China, according to data compiled by Goldman Sachs MSCI Real Capital Analytics. They had wagered on the Chinese real estate market, anticipating a continuous growth in demand for real estate due to increasing economic activities, presenting them with profit opportunities. However, reality has proved this to be a severe miscalculation.
As Chinese real estate companies continue to collapse one after another, an unprecedented oversupply in the real estate sector has led to a decline in rents, with many property prices plummeting dramatically, some even dropping back to levels from a decade ago.
Foreign investors primarily invested in commercial real estate in Beijing and Shanghai, with office investments accounting for a significant portion of their real estate investments. Since 2019, the commercial real estate markets in Beijing and Shanghai have seen valuations plummet by over 40%.
The office vacancy rates in major Chinese cities are among the highest globally, ranging from 20% to 40%. Real estate consulting firms and economists project that it may take several years to absorb the excess supply of commercial real estate in China, with any rebound potentially years away.
Some foreign investors have had to reduce rental prices or renew leases, with some experiencing a 25% decrease in rental income. Despite these adjustments, foreign investors are finding it increasingly challenging to exit the Chinese real estate market and even recoup their costs.
Bloomberg reports that the longer owners wait to sell, the greater the potential losses.
Industry analyst Patrick Wong of Asia Pacific Real Estate expressed, “Foreign investors are trapped in their investment properties in China.” He indicated that the best option for foreign investors is to find local buyers, but even Chinese state-owned enterprises are on the sidelines, awaiting signs of improvement in the real estate market.
According to data from MSCI Real Capital Analytics, foreign investors heavily bet on Chinese real estate before the COVID pandemic. In 2019, foreign investors set a historic new high with nearly $20 billion in purchases in China’s real estate market.
Rebecca Tang, head of China real estate industry at Fitch Ratings, stated that China’s adverse market environment may lead to more distressed assets being sold.
She expressed concerns that the sale of distressed assets could in turn impact the valuation of similar commercial real estate assets, further dragging down the value of healthier real estate assets.
Nicholas Wilson, director of Asian real estate economic services at the Oxford Economics Research Institute, predicts a continued decrease in office rents in China in 2026, with China’s nominal property value still expected to be lower in 2030 than in 2020.
An opinion piece on the Aid to China Assistance News website pointed out that reality and authoritative research theories both illustrate that under the authoritarian rule of the Chinese Communist Party, the Chinese economy has entered an extremely dangerous situation in the real estate sector alone, and today’s collapse of the Chinese real estate market is a visible manifestation of the chronic issues under the CCP’s authoritarian rule.
The article highlighted that before the collapse of the real estate market, a severe economic winter is descending upon China. Business closures are surging, widespread unemployment is on the rise, and people’s wealth is plummeting rapidly. This has led to over 900 million people nationwide in debt, intensifying various social conflicts, witnessing a surge in violent incidents, and the society is heading towards an extremely unsafe state. In recent years, China has seen a rise in suicide trends like city residents jumping off buildings, and a wave of aimless random acts of violence in society.