Property groups investing in China look to local investors

September 24, 2013 3:59 pm

Property groups investing in China look to local investors

By Simon Rabinovitch in Shanghai

When Tishman Speyer, the US property company, raised its first China fund in 2007, the money came from overseas investors eager to get a piece of one of the world’s hottest real estate markets. Six years on, China’s property is still sizzling but foreign investors are much more nervous about its outlook. For Tishman Speyer, which remains upbeat about Chinese property, this shift has led to a change of strategy. Instead of tapping overseas markets, it is raising the cash it needs for Chinese projects within China itself, where investors remain much more positive.Cementing this change, Tishman Speyer has just closed a new Rmb3bn ($490m) fund for a real estate project in Shanghai, China’s financial centre. It is the second renminbi fund raised by the property company since the start of last year and the biggest ever by a foreign developer. Others are trying to raise similar funds, according to investors.

Rob Speyer, co-chief executive, told the Financial Times: “Nobody understands the Chinese real estate market better than Chinese investors and there are so many misperceptions about China in other countries.”

So far, the bet on Chinese property has paid off. Housing values in the country’s biggest cities have continued to rise over the past three years, even as the government has waged a campaign to cool the market.Residential prices in China’s biggest cities, including Shanghai, soared almost 20 per cent from a year earlier in August. Prime office rents have levelled out this year but only after surging over the previous three years.

With China completing more than 10m housing units last year and lots of commercial property also coming on to the market, foreign investors have been wary of buying into Chinese developers. The Hong Kong-listed shares of leading China-focused property companies such as Shui On Land and Evergrande Real Estate are down sharply since 2009.

“There are still investors who want to have exposure to China but in terms of taking on development risk there is more caution outside China than inside China,” said Chris Brooke, China chairman of CBRE, a real estate services company.

“The perception from outside is that there is significant supply coming on-stream all at the same time, so that there is bound to be oversupply. Those of us onshore can see that underlying demand is still very strong.”

There are still investors who want to have exposure to China but in terms of taking on development risk there is more caution outside China than inside China

– Chris Brooke, China chairman of CBRE

Mr Speyer said: “We’ve continued to invest in China despite the doubters and we’ve been rewarded for that.” He added that a shortage of high-quality housing and office space in the country’s biggest, wealthiest cities would underpin demand in top-tier Chinese markets for years to come.

For its latest Shanghai project, Tishman Speyer will partner with Shanghai Lujiazui Group, the state-owned developer that helped build the city’s main financial district. They will develop a 4m sq ft mixed-use project in Qiantan, an area the government wants to transform into a new business zone.

Tishman Speyer will fund its portion of the Qiantan investment with the new Rmb3bn fund. Investors in the fund include Chinese insurance companies, trust companies and wealthy individuals.

Along with finding more interested investors in China, it is also much simpler for developers to use money raised onshore than to transfer money held overseas into China. Mr Speyer said it took “several months” to raise the money and that he hoped to launch a third onshore Chinese real estate fund before long.