“In the midst of every crisis, lies great opportunities,” said Albert Einstein, and for dealmakers in Asia-Pacific, the current malaise in the real-estate (RE) sector represents rich pickings. Reflecting this, property deal volume surged 43.3% year-on-year to USD 21.2bn as at 8 April, driven by asset sales from overly-indebted Chinese developers.

RE companies, particularly the privately owned, are divesting assets to raise money and repay debt. The top deal in the region YTD was the sale of a 60% stake in Dalian Wanda Group’s mall unit, Newland Commercial Management, by a consortium led by private-equity (PE) firm PAG.

Meanwhile, Chinese authorities have highlighted the role of M&A in restructuring the troubled RE sector. M&A loans, as well as extension loans, provided to RE enterprises in China exceeded CNY 1trn (USD 140bn) in 2023, according to a senior official.

Chinese regulators drafted a whitelist of RE projects to guide financial institutions in supporting the industry via bank loans, debt and equity financing. The Shanghai Stock Exchange also vowed last December to support the “reasonable” financing and M&A needs of RE firms.

Housing minister Ni Hong pledged “reasonable financing” to support distressed property developers, but not those facing insolvency – they will be either subject to bankruptcy or restructuring.

In January, a Hong Kong court ordered the liquidation of property giant Evergrande. In February, Logan Group obtained an extension to proceed with a debt-restructuring plan following a ruling by a Hong Kong court that rejected creditor requests to dissolve the Chinese developer.

Other Chinese RE firms hit by liquidation lawsuits include Shimao, which is seeking to offload properties in mainland China and Hong Kong, and Country Garden, which is ramping up asset sales in China and abroad to raise cash and address debt woes.

Another major Chinese property developer, Gemdale, recently sold a commercial and residential complex project in downtown Shenzhen to a state-owned buyer for CNY 3.3bn (USD 463m) to alleviate debt-repayment pressure.

Watching the commercials

China’s slumping commercial property market is attracting bargain hunters, according to Colliers International Group, as prime office values have tumbled around 30% from their pre-pandemic high in some of the nation’s major cities.

Chinese insurance companies, flush with cash, started purchasing commercial RE in 2H23. Buyers include Ping An Life Insurance of China, Taikang Life Insurance, AIA Life Insurance, and China Pacific Life Insurance. Among others, state-owned insurer New China Life Insurance recently set up a USD 1.4bn fund for property investments.

RE investment trusts (REITs) are also poised to play a significant role in China’s commercial property market. Beijing expanded the scope of REITs last year to commercial properties, as part of an attempt to prop up a battered property sector. Such REITs enable investor funds to flow to property owners and give developers an opportunity to exit their projects.

In February, the China Securities Regulatory Commission (CSRC) and the National Development and Reform Commission (NDRC) said they intend to promote qualified consumer infrastructure REIT projects, with priority given to department stores, shopping malls and farmers’ markets. The first batch of consumer infrastructure REITs were listed on the Shanghai Stock Exchange last month.

Cross-border bargains

Property woes go well beyond China, posing both challenges and opportunities for dealmaking. Last month, Japan’s Sekisui House REIT sold a large office building, the Garden City Shinagawa Gotenyama, at a loss after its vacancy rate rocketed to 50%. Dealogic valued the deal at USD 843.5m, the fourth-largest RE transaction in Asia-Pacific since the start of the year.

Opportunities to buy at bargain prices could also emerge in South Korea. Last month, the Financial Supervisory Service (FSS) urged banks to step up financial support for troubled builders amid growing concerns over risks from distressed RE projects. A few days later, South Korea’s central bank warned that a further slump in the RE sector would undermine broader economic activity.

APAC’s RE sector also offers dealmaking opportunities beyond distressed situations, such as those relating to niche sectors or growth in Southeast Asia.

Among others, Singapore’s REITs are increasingly acquiring data centers in Japan, reflecting the growing appetite for tech-related property assets in Asia. And last year, Chinese and Russians topped the list of foreign buyers of condominiums in Thailand, driving property demand above pre-pandemic levels.