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Property firms quicken overseas expansion
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PROPERTY firms have quickened their pace of offshore expansion to meet the appetite of Chinese consumers and find new opportunities beyond the tepid domestic property market.
In the first quarter of 2014, institutional investors’ offshore property investments rose 25 percent year on year to US$2.1 billion, while the sum going to residential property grew by 80 percent, according to Jones Lang LaSalle Inc, a global real estate services and investment management company.
The overseas residential property investment by China’s institutional investors in the quarter exceeded US$1.1 billion, smashing last year’s record of US$600 million. The real estate projects in Britain, Australia and the United States were most favored by Chinese investors.
Offshore expansion by Chinese investors is more impressive than in the domestic market because it has a higher potential profit, analysts say.
Wanda Group, one of China’s largest property developers, said in January that it would invest up to 3 billion pounds (US$5.1 billion) in British cities. Greenland Group also said earlier this year that their overseas investment was almost 35 billion yuan (US$5.6 billion) in 2014.
Developers, abundantly liquid because of previous successes, are diversifying their portfolios, focusing on gateway cities, such as London, New York, Los Angeles and Singapore, according to Zhu Fei, researcher from Yuexiu Property Institution.
With the financial environment in overseas markets relatively benign compared with China’s mainland, some property firms have gone public in Hong Kong or the US, Zhu said.
The upsurge in overseas expansion can be attributed to the growing appetite of Chinese people for residential properties in pursuit of capital security, access to education and health care, permanent residency and citizenship, to name but a few.
Traditional destinations
Around 150,000 Chinese emigrate overseas annually, which is expected to generate a purchase demand for properties worth more than 75 billion yuan, said Li Qingwen, general manager of DTZ Real Estate Consultancy Co Guangzhou.
Traditional destinations of immigrants top the money flows, said Fu Zhenhuang, analyst from Deloitte, adding that investment has been most active in London, New York, Singapore, Sydney, Manchester and Hong Kong.
Statistics from Savills, a global real estate services company, suggest that Chinese consumers invested US$13.5 billion overseas in 2013, almost double that of 2012.
Huang Yuwei, executive CEO of an overseas property investment company, said his company sold fewer than 10 houses a year seven years ago, and now move 15 to 20 daily.
“Investing in overseas property will be much more impressive in the next 10 years,” he said.
Calculations based on the asset scale of the Chinese high net worth individuals suggest that 1.1 trillion yuan will flow into overseas properties.
Risks are accompanying this overseas exploration. Zhao Yongshuang, deputy CEO of Yihe Real Estate, said the group has developed in New York, Boston, Los Angeles in the US and also Mauritius in Africa because of the complete financial and credit system in those markets. “However, Chinese enterprises have to be cautious,” he said.
Political instability tops the list of risks, said Long Bin, head of the Hopefluent Real Estate Economic Research Institute.
Beijing Zhongkun Investment Co had proposed to buy 300 square kilometers of an island in Iceland, but the deal failed after two years of waiting for government approval.
“The industry is teeming with risks that are easily ignored due to its high profit. The property market scale, tax and interest rate fluctuation, political frictions, any of these factors could lead to failure,” said industry insider Zhang Yong.
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