Thought Leadership

Highlights

1.The Appellate Court for insolvency matters, the NCLAT, in its recent landmark ruling has destroyed the idea of inter-creditor seniority amongst secured creditors in the liquidation waterfall.

2.Unlike liquidation under the Companies Act, liquidation waterfall under the insolvency Code is based on the election made by the secured creditor, between enforcement outside the code or relinquishment to the liquidation estate.

3.Sub-classification amongst secured creditors is irrelevant where the secured creditor elects to relinquish its security interest.

4.Such liquidation waterfall is likely to better the position of dissenting secured financial creditors at the resolution stage as well.

As China benefits from being “first in and first out” of the COVID-19 pandemic, it has become increasingly attractive to investors both locally and from around the globe. In response, as a joint effort of our Research, Valuation and Capital Markets teams, in late 2020 we conducted an investor intentions and cap rate expectations survey, collecting valuable responses from mainland China’s largest commercial real estate (CRE) investors, both domestic and international.

The survey results revealed strong investor interest in China’s Tier 1 cities – especially in office assets in Beijing and Shanghai, as well as growing interest in business parks. Investor interest in retail assets also remained relatively solid, driven by China’s rapid recovery from the pandemic. Not surprisingly, the majority of survey respondents also demonstrated interest in logistics and data centers in Tier 1 and surrounding satellite cities. Among the major Tier 2 cities, Hangzhou – China’s rising tech city and provincial capital city of Zhejiang, emerged as the top choice, followed by Chengdu.

In terms of cap rate expectations, cap rates for CBD office properties in Beijing and Shanghai will likely remain low in 2021, ranging between 3.9% and 4.6%. In contrast, office cap rates in Shenzhen and Tier 2 cities are expected to rise slightly. For retail investments, cap rates are expected to stay relatively steady in Shanghai, Guangzhou and the major Tier 2 cities, while an uptick in cap rate is likely in Beijing and Shenzhen. In addition, cap rates of business park properties are anticipated to remain stable across all major cities in China, while most respondents expect further compressions in cap rates of logistics facilities and data centers in and around Tier 1 cities.

Last year was a tough one for commercial real estate in Singapore and Malaysia. But with record-breaking transaction volumes rounding out 2020 and Covid-19 vaccines rolling out at speed, there’s hope on the horizon.