 |
|
Real estate survey results Global Regional breakdown Country breakdown Methodology Real estate comment and analysis Can commercial real estate keep going up? Colony corners FDIC fire sales Chinese developers beat the ban |
With $9.6 billion of reported direct CRE investment in the first half of 2011, according to Jones Lang Lasalle, mainland China remains the focal point of Asia Pacific CRE investment despite government attempts to cut off the domestic debt supply. Alongside three interest rate increases and higher reserve requirements for big lenders, Chinese authorities last year placed direct limits on banks’ advances to developers while provincial governments have increased stamp-duty type levies on buyers, says Nick Crockett, head of corporate finance at JLL Asia in Singapore. With the domestic debt spigot shut off, where is the money for new projects coming from? US high-yield bond investors and offshore partnerships are filling the vacuum, Crockett says. “After several years of abundant finance, China is now a debt-constrained market. However, Chinese property developers have raised significant capital from US high-yield investors as the appetite from foreign lenders to gain exposure to the Chinese market has remained strong,” he says. According to capital markets data provider Dealogic, Chinese property companies have raised more than $9.2 billion from US high-yield investors since the beginning of 2010, with $3.1 billion printed in 2011 alone.
Although Chinese developers have made good use of US bond investors’ capital, Crockett says that offshore bond markets have not been able to make up all of the shortfall and many groups need to find as much as 50% of their development costs from equity partnerships listed in Hong Kong. By listing in Hong Kong, partnerships are able to get increased transparency over the performance of assets and cashflows from China, which bankers say is difficult to achieve onshore. A Hong Kong listing also enables the partnership to attract foreign funds, including debt from international lenders based in Hong Kong.
Although foreign capital is seeking access to the surging rental and asset appreciation generated by Chinese urban developments, western companies typically lack the local know-how required to bring a development to fruition and often rely on local partners to deal with the logistics. Foreign investors can bring capital and specialist asset management expertise to the table, especially in such niches as hospitality and retail, where western expertise can make a difference. After cross-border purchases accounted for $3.4 billion of the first-half inflows, China’s intention to build more than 200 new shopping malls across 20 cities before 2012 continues to attract interest from European institutional investors and foreign developers.
Given the explosion in retail development in China, the ability to position a facility to attract the right tenants will likely prove a key competitive differentiator. Whether or not the rate of urbanization in China will be able to support the flood of retail developments and meet investor expectations remains to be seen. Crockett says: “On the face of it foreign investors have made returns in the 20% area over the past few years by buying low and selling into a strong market. We don’t know yet how sustainable these new malls will be in terms of earnings. You need to go through a few lease cycles to know if you have a stabilized asset.”
Crockett adds that the Australian office sector has emerged over the past 18 months as an attractive venue to play the Asia-Pacific growth theme while avoiding some of uncertainties associated with direct investments in mainland China. “Offshore investors are looking for diversification within Asia-Pacific and Australian office, retail and industrial, and this has been a beneficiary of both debt and equity investments,” he says. “Asian institutional investors see it as a proxy for China and India, with a sound legal environment and developed economic infrastructure.”
View results from Real estate results by country – China
