Domestic capital reshapes China real estate deals as asset managers redirect to ‘China-for-China’ play

[SINGAPORE] Asset managers are increasingly turning to China’s domestic capital markets to recycle assets, raise funds and seek exits, with valuations yet to recover and foreign capital steering shy of the Chinese real estate economy.

International fund managers are establishing yuan-denominated real estate funds that raise capital from Chinese institutional investors, insurance companies, high-net-worth individuals and state-owned enterprises (SOEs), said Ada Choi, CBRE Asia-Pacific head of research.

“These RMB (renminbi) funds are dedicated solely to investments in China, while pan-Asia-Pacific and global real estate funds exclude China, effectively ringfencing capital into two separate pools,” she added.

Mapletree Investments, for one, is partnering with onshore insurers to explore fund syndications for its China logistics portfolio and selectively divesting assets to local investors, including SOEs, mid-sized private businesses and end users.

“We are in advanced stages of establishing our first RMB fund for the China logistics portfolio and have secured local insurance companies as our partners,” a Mapletree spokesperson told The Business Times.

The fund will include some assets from Mapletree Logistics Trust (MLT), management said previously at the trust’s April earnings briefing. The trust is targeting S$200 million to S$300 million in divestments from its pipeline for the upcoming financial year.

MLT is “in discussion with international and local institutional buyers as well as end-user buyers”. The divestment process has been “somewhat protracted due to a gap in pricing expectations between the buyers and sellers in the market”, an MLT spokesperson said.

A Mapletree spokesperson said: “The group is actively exploring additional capital recycling avenues, including potential C-Reit (China real estate investment trust) listings and alternative structures such as private Reits and quasi-Reits, to further optimise its logistics portfolio.”

Capital recycled from these initiatives “will strengthen Mapletree’s financial resilience and provide flexibility to support its future growth”.

CapitaLand Investment (CLI) is understood to have filed for a second C-Reit with an expected initial public offering (IPO) size of about 4.8 billion yuan (S$900 million). Subject to regulatory approvals, the asset manager expects the listing to proceed in Q2 or Q3 2026.

“We continue to see opportunities in China’s institutional real estate market,” said Puah Tze Shyang, chief executive officer of CLI China.

China’s fast developing C-Reit market has grown to 81 listed Reits with around 224 billion yuan in market capitalisation as at May 8 this year. With government bond yields below 1.85 per cent, average property C-Reit yields of around 4 per cent remain attractive to investors seeking stable returns.

“As transaction activity gradually recovers with improving domestic liquidity and policy support, CLI is targeting approximately S$1 billion of divestments in FY2026 in China,” said Puah.

“By recycling stable income-producing assets from our balance sheet into C-Reits and onshore RMB funds, we can deploy capital into new fund formations and investment opportunities to grow recurring fee income.”

CLI’s upcoming C-Reit follows the listing of its first trust – CapitaLand Consumption C-Reit – in September 2025. As at end-2025, the trust’s unit price had appreciated 14.1 per cent from its IPO price.

In May 2025, CLI launched its first onshore master fund, CLI RMB Master Fund, with a total equity commitment of five billion yuan. Backed by a “leading domestic insurance partner”, Puah said, the fund reflects “strong investor appetite for quality and income-producing assets”.

“While supportive regulatory developments have improved market conditions including enhanced flexibility in deploying proceeds, the divestment timeline of any given asset will be on a case-by-case basis, subject to prevailing market conditions.”

In the China-for-China playbook, the investment thesis is increasingly linked to domestic structural themes such as consumption, rental housing, data infrastructure and new economy industries, said Virginia Huang, Knight Frank managing director for north and east China.

“For foreign managers, this represents a shift from being mainly providers of global capital to becoming local operating partners with sector expertise, asset management capability and domestic capital relationships,” she added.

The Chinese market is highly dominated by domestic capital, said Choi. From 2023 to Q1 2026, CBRE recorded about US$112 billion of transactions in China, with roughly 10 per cent done by non-local investors, including from Hong Kong. Excluding Hong Kong managers, the share attributable to foreign capital falls to just around 3 per cent.

Domestic insurers such as Taikang Insurance, New China Life and Dajia Insurance have emerged as some of the most active buyers in China’s real estate market over the past two years. Foreign and regional investors such as PAG, AIA Group, Starwood Capital and ESR also remain active, said Huang.

She also observed that while foreign investors remain interested, especially where pricing has adjusted and structural demand is clear, they are “becoming more cautious on currency risk, rental growth and exit visibility”.

Transaction activity in China’s commercial real estate market is showing signs of recovery amid improving pricing transparency and liquidity.

RCA and Knight Frank data showed investment volume rose to about 267.1 billion yuan in 2025 from 257.6 billion yuan in 2024, with year-to-date transaction volume in 2026 reaching around 75.4 billion yuan.

CBRE recorded total real estate deal volume of US$105.6 billion between 2023 and 2025, with a further US$6.6 billion recorded in Q1 2026. Its latest Asia Pacific Cap Rate Survey showed that mainland China saw a sharp rise in buying intentions amid substantial asset repricing. The proportion of respondents with stronger buying intentions climbed from 6 per cent in Q3 2025 to 54 per cent in Q1 2026.

“It’s been 10 years since the market downturn started in 2015 to 2016, and the overall sentiment has eased. We don’t foresee cap rates continuing to rise, and Beijing and Shanghai (core locations) will stabilise,” said Choi.

By segment, retail transaction volume rose to 97.8 billion yuan in 2025 from 75.1 billion yuan in 2024, supported by investors’ interest in consumption-linked income, asset repositioning and stabilised retail assets, Knight Frank data showed.

Office assets remained highly traded, particularly among end users and institutional investors, said CBRE. However, Knight Frank noted that deal volume declined from 104.6 billion yuan in 2023 to 76.4 billion yuan in 2025, amid continued rental pressure and more selective pricing.

Data centres have shown the strongest momentum this year, with transaction volume reaching 32.9 billion yuan in the year to date – well above the 13.6 billion yuan recorded in 2025 – supported by demand linked to cloud computing, artificial intelligence and data storage.

In contrast, hotel transaction activity remained weaker, with volumes declining from 29.7 billion yuan in 2023 to 22.9 billion yuan in 2025.

China remains a challenging investment environment due to overcapacity across most sectors and cities, said Greg Hyland, CBRE Asia-Pacific head of capital markets. “This has resulted in a material correction in values that is now starting to represent an interesting entry point.”

He added that regulatory changes supporting initiatives such as private Reits have improved liquidity for quality assets, with both local and foreign investors starting to use such structures as pathways to generating liquidity.

“We are starting to see early green shoots in China, albeit the recovery is likely to be modest in the early stages.”

Knight Frank’s Huang said: “China remains investable, but the investable universe has narrowed. Investors are focusing on assets with resilient income, realistic pricing, strong locations, operational upside and credible exit routes.”