Foreigners still hot on China
property By Olivia Chung
HONG KONG - Despite continuous
interest-rate hikes and never-ending warnings
about the possibility of more government
belt-tightening measures, the red-hot property
market in mainland China will still be an
investment focus of foreign investors this year,
who will go on buying buildings en bloc and
teaming up with local or foreign partners to
develop new projects, in anticipation of handsome
returns and the appreciation of the nation's
currency, the yuan.
Macroeconomic control
was the keyword in China in 2006, with
one of
its major aims to contain skyrocketing property
prices. Measures range from increasing interest
rates for loans and the minimum down payment for
homebuyers to restrictions on property investment
by foreigners, and the most recent value-added tax
on land.
However, the country's strong
economic growth, rapid urbanization and growing
number of high-income earners continue to buoy the
property market. Anticipation of yuan revaluation,
improved market regulation and a better
land-auction system also help attract foreign
capital to the property sector.
The
Chinese government's macroeconomic control
measures aimed at curbing speculation and
regulating the property sector were good for the
healthy development of the property market and
were in fact welcomed by foreign investors, said
Alva To, director of consulting and research at
international property adviser DTZ.
"That's why in the second half of last
year more big investment projects were completed
[with] foreign funds than in the first half, after
a slew of measures were announced to cool down the
overheating property sector since [the middle of]
last year," he said.
Morgan Stanley agreed
to buy 32-story Chateau Pinnacle Tower A, a
high-profile property in Shanghai, for 760 million
yuan (US$98 million) shortly after the central
government introduced the measures last year.
Ascott Group, Asia's biggest
serviced-apartment operator, bought a number of
properties in Beijing, Suzhou and Tianjin last
year, while Mapletree Logistics Trust, one of five
Singapore reits (real-estate investment trusts),
signed a deal with Wuxi for an 18-hectare site for
a proposed logistics-park development.
Gateway Capital bought a three-story tower
with 100 apartments, part of Shui On's Lakeville
Regency complex, in Xintiandi, Shanghai, for about
$77 million.
According to DTZ's latest
Asia Pacific Property Market Overview, the Chinese
real-estate market continued to attract an
increasing level of foreign investment in 2006,
with the total number of en bloc building
transactions involving foreign investment jumping
38% to 40 cases from 2005, while the total
consideration surged 67% to $3.8 billion from $2.7
billion.
"With both transaction numbers
and the investment amount surging in tandem, we
can no doubt conclude that investment funds are
keener to invest in this rapidly expanding economy
- especially in search of readily built properties
that warrant attractive returns - partly riding on
housing-price hikes and the potential appreciation
of the yuan,'' To said.
He said
accelerated urbanization, greater affluence, an
increasing influx of multinational corporations
and the healthy development of the real-estate
market continued to form a rosy picture for
investors.
Shanghai and Beijing remain the
priorities for en bloc building investment,
accounting for 73% of the total number of
transactions in 2006, the same level as 2005.
Although foreign investment tends to be
focused in mature cities as more completed
projects - usually of higher quality - are
available, interest in other cities also
heightened, particularly in Shenzhen and
Guangzhou.
In 2005, Shenzhen and Guangzhou
each only registered one investment transaction,
while in 2006, Shenzhen saw four and Guangzhou
five, with their combined share of overall
investment tripling to 19% in 2006 from 6% in
2005, according to DTZ.
On the land-market
front, the number of transactions increased by 19%
to 273 in 2006 from 230 in 2005.
Of the
total, the number of transactions involving
amounts of $100 million or above rose by 54% to 40
in 2006 from 26 in 2005. Of the 40 large-scale
site transactions, foreign funds accounted for 20,
representing an increase of 43%.
Unlike
previous macroeconomic control measures such as
credit-tightening or raising interest rates, the
measures launched in the middle of last year were
aimed at restricting foreign investment in
property to drive hot money out, which would
affect small developers and speculators who find
it more difficult to raise money but not
foreigners who seek stable returns on long-term
investments, To said.
Foreign entities
that intend to purchase properties other than for
their own use must do so through a wholly
foreign-owned mainland company or a joint venture
with a mainland firm.
Foreign-funded
property companies investing more than $10 million
in the mainland are also required to hold
registered capital of at least 50% of the value of
their investment.
"Due to the improving
property market and regulatory system, strong
foreign and local companies are more willing to
team up with local or foreign partners to develop
new projects, which will become the trend of their
investment strategy in China in the years ahead,"
To said.
Last year, ING Real Estate
Investment Management (Asia) signed an agreement
with Shenzhen-based developer Gemdale Corp to
acquire a 51% stake in a residential development
in Tianjin for $23.5 million. British property
giant Grosvenor made its first investment in the
mainland last year by teaming up with Asia
Standard International to acquire a 105-unit
serviced apartment tower in Puxi, Shanghai.
Domestic developer China Vanke paid $92
million for two residential plots of land in
Ningbo and acquired a 60% stake in Narada's
subsidiary, Narada Real Estate Development, for
$227 million, according to the Oriental Morning
Post.
To said that because of the
improving regulatory and land-auction system,
foreign investors will be able to gain a better
understanding of the mainland property market,
with more becoming interested in second-tier
cities such as Chongqing, Hangzhou, Tianjin and
Chengdu.
"Of site transactions last year,
Beijing had the largest number, 53, accounting for
19.4% of the total. This was followed by Chongqing
(12.8%) and Hangzhou (12.5%), indicating that site
investment is less location-specific and that the
land market is rapidly developing across the
nation," said Francis Li, vice chairman and head
of investment for northern Asia at DTZ.
On
en bloc property purchases, Li said demand
for investment opportunities in the residential,
serviced-apartment and hotel sectors will increase
this year as a result of accelerated urbanization,
growing affluence and an increasing flow of
expatriates into China.
Besides,
investment in en bloc property was more
balanced across property sectors compared with
2005, with money spent on completed office and
retail projects falling to 49% of the total
transactions in 2006 from 68% in 2005, while
serviced apartments, residential property and
hotels almost doubled to 40.9% from 20.6%.
Olivia Chung is a senior Asia
Times Online reporter.
(Copyright 2007
Asia Times Online Ltd. All rights reserved. Please
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