CPPIB Invests in Chinese Real Estate

Pension giant wades into residential development in China.

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shanghai skyline chinaThe Canada Pension Plan Investment Board (CPPIB) has formed a new venture with China Vanke Co., the largest residential developer in China.

Through this venture, the CPPIB will, over time, invest US$250 million ($279.2 million) in the Chinese residential housing market.

The venture will focus on new residential development projects in large cities across China, where there are rising incomes and strong economic fundamentals. It is expected that these factors will provide significant demand for middle-income housing. Vanke will be responsible for sourcing projects for the venture.

To seed the venture, the CPPIB and Vanke are investing in a project located in Qingdao, located about 700 kilometres southeast of Beijing.

“We see this as an excellent opportunity to expand our presence in the country and invest in the residential sector alongside Vanke, an experienced and market-leading developer with a proven track record of delivering high-quality homes to China’s ever-growing middle class,” says Graeme Eadie, senior vice-president, real estate investments, for the CPPIB. “Asia continues to be an important real estate market for CPPIB and one where we already have significant investments in the commercial property and logistics sectors.”

Founded in 1984, Vanke is the largest residential developer in China with revenues of more than US$22 billion ($24.6 billion) in 2013 and has developments in 65 large- and medium-sized cities across the country and four overseas cities.

At Dec. 31, 2013, CPPIB’s investments in Asia totalled $23.4 billion representing 11.6% of the total portfolio, including $4.2 billion of real estate investments.

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I'm not an investment expert, but given the increasingly high cost of residential real estate, and the high vacancy rate causes by prices being out of reach for most middle class in China. I hope the CPP investment board has thought about what might happen. Good chance that there is a housing bubble about to burst if China's easy credit and high debt to GDP ration are addressed by the powerful central committee. It would even play into there communist believes on the evils of capitalism. Cut back on infrastructure spending, put millions of employees in out of work, allow the bubble to burst, punish the mid level officials who have used graft to purchase many residential properties (making their investments worthless). Then blame unchecked capitalism and greed for the result of the boom/bust, call out the troops, expropriate the properties and give them to the workers. Sounds like a plan.

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