CPPIB, Longfor Properties to invest $817m in China’s rental housing market

Residential and commercial buildings are seen from Victoria Peak in Hong Kong, China, on Monday, Sept. 11, 2017. Hong Kong stocks fluctuated on Sept. 12 as automakers extended gains driven by China's plan to phase out fossil-fuel vehicles, while banks and property companies weighed on the benchmark index. Photographer: Billy H.C. Kwok/Bloomberg Photo by Bloomberg

In an extension of their collaboration, the Canada Pension Plan Investment Board (CPPIB) and China’s premium property developer Longfor Properties are targeting the country’s rental housing segment with a new $817-million investment plan.

According to a release, the initial investment of $817 million will be focused on China’s tier I and II cities by way of developments, acquisition, master-lease of commercial assets that can be converted into rental housing.  

“Demand for modern, quality rental housing among young professionals and new graduates in China is growing rapidly, and through this collaboration, we have the opportunity to participate in this fast-growing sector of Chinese real estate and to further diversify our investments in the market,” says Jimmy Phua, managing director, head of Real Estate Investments Asia, CPPIB.

Longfor Properties, also known as Longfor Group Holdings Limited, is based in Hong Kong with business spanning across 40 cities in China. Among its major property portfolio includes retail properties in China such as Chongqing North Paradise Walk, Chengdu Three Thousand Mall and Beijing Changying Paradise Walk.

CPPIB and Longfor’s collaboration started in 2014 and their joint investments include Paradise Walk branded retail assets, mixed-use real estate project in Suzhou, Chongqing, Shanghai and Chengdu. In January, the two firms announced two residential and commercial developments in Chengdu and Shanghai for an investment of $800 million.

“The strategic cooperation in long-term apartments shows CPPIB’s recognition of Longfor Group’s development and operation capabilities. With the precise positioning, brand reputation and efficient operation, we have made a strong start in the area of long-term rental apartments and expect to gain a strong foothold in this new, policy-supporting market,” said Zhao Yi, executive director and chief financial officer of Longfor Group.

CPPIB is the manager of CPP Fund which totals about $300 billion as of the end of 2016. Mark Machin, chief executive officer, CPPIB, expects the board’s investment in China to increase up to $116 billion by the next decade, according to the China Daily.

With about C$337.1 billion ($225.4 billion) under management, CPPIB already has invested C$19.8 billion ($15 billion) in China. CPPIB hopes to leverage on the China’s growth prospects to continue to be the leading economies in the world.

Its investment includes a $1.6 billion in Hillhouse Capital, a China-based alternative asset manager.

“We look forward to extending our partnership with a well-established and experienced operator like Longfor Group, particularly as we embark on our first dedicated rental housing investment in China,” said Phua.

The Toronto headquartered pension plan investment board invests in public equities, private equities, real estate, infrastructure and fixed income instruments to pay benefits on behalf of 20 million contributors and beneficiaries.

It has offices in countries including Hong Kong, London, Luxembourg, Mumbai. CPPIB is also working to assist the Chinese policy makers in addressing China’s challenges of an aging population.

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