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.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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