Cadim: The China and India Real Estate Market Entry Decisions
Cadim is a real estate division of Caisse de Depot et Placement du Quebec (Caisse), Canada’s largest pension fund management firm. Caisse is the largest institutional investor in Canada, overseeing more than $245 billion in assets and carrying out more than $12 billion in transactions daily. Cadim is one of Caisse’s three real estate divisions comprising around 6.23% of Caisses portfolio ($15.3 billion). Cadim focuses on residential and hotel markets, while the other two real estate arms ...view middle of the document...
III. GENERAL ENVIRONMENTAL
To understand why Cadim is looking for investment abroad we must first understand the investment landscape of their current markets, North America.The internal rate of return for real estate in the North America from 2005-2007 was below the 14% risk –adjusted return that Cadim targeted. Despite there being individual deals which were profitable because Cadim scale, continuous exceptional performance would be very difficult. Despite being a multinational company, because Cadim’s previous real estate investments are all in developed countries they are not a diversified as they could be. Cadim thus decided to look to developing nations who’s average returns were considerably higher.
The Chinese real estate market has grown exponentially over the past decade. China has built the equivalent of a city the size of New York once a year, but can still not keep up with demand. This demand is predominantly driven by residential and infrastructure construction in major cities. The surge in real estate production and demand has been driven by mass migration of the Chinese people from more rural areas to the more populated metropolitan areas and government supported infrastructure projects. This real estate growth has been one of the primary causes allowing China’s economic to prosper.
Because Chinas GDP is directly tied to construction, China has continued to increase its construction as a way of “inflating” its GDP. I say “inflating” its GDP because despite not being able to keep up with demand, the residences being construction do not always get used or even sold. To draw a comparison, the US GDP is calculated by real estate sales, not allowing the US to artificially inflate its GDP just by producing.
Currently there are around____ ghost cities in China capable of holding around_____ people. These ghost cities have and will most likely remain vacant because the avg. cost to rent or by one of these newly constructed residences is far above what the avg. Chinese is capable of affording. Despite the rampant vacancies the Chinese government still continues to fund massive construction indicatives.
India’s economy is booming! With large decreases in poverty, increases in literacy and GDP, India is continuing to make its way out of the third world and into the first. India is predicted to surpass even China in growth by 2050. A competitive private capital market has instilled Indians with a low cost high quality mentality and has resulted in some of the highest return rates for any country. India has been averaging 6% growth compared to China’s 9.5% with half the investments. India capital efficiency is one of its strongest economic benefits.
Despite this India is still a complicated place for foreign investors. A weak parliamentary government has very little purview over the provincial and local ministers who were elected entirely...