People walk by the World Trade Center site in New York. Shannon Stapleton / Reuters

Chinese property companies start taking big steps in global realty markets

Though international investors remain unsure about moving ahead in the Chinese realty market, their Chinese peers are getting ready to take big steps in the global arena.

Vantone Holdings Co Ltd provided the impetus for Chinese realty moves in 2009 by becoming the first corporate tenant of the new World Trade Center in New York. By current estimates, there are some 10 major Chinese property developers who have made international investments.

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Prominent among them are property enterprises such as Vantone and Vanke and State-run construction corporations like China State Construction and China Railway Group Ltd. Today the footprint of their investments covers nations as diverse as Australia, the Republic of Korea, Iceland, the United States, Russia, Nigeria, Chile and the Bahamas.

Not surprisingly, most of the moves have been in tandem with the global expansion plans of Chinese companies.

"Where our clients go is where our realty and services will be. Though we are in the US, we continue to be active in China," Feng Lun, chairman of real estate company Vantone, said in a recent interview.

China Center New York, Vantone's symbolic realty project in the US, will encompass the 64th to 69th floors of the One World Trade Center by 2014. It will also serve as a resource for Chinese companies entering the US, as well as for American businesses seeking opportunities in China.

Set up in 1992, the Shanghai-based Greenland Group is one of the biggest State-owned enterprises in the city as well as a leading comprehensive real estate enterprise in China. The 20-year-old property corporation is looking to test the international markets and recently inked an agreement with Jeju Free International City Development Center in the ROK. Under the agreement the Chinese company will invest about 1 trillion won ($901.8 million; 688.8 million euros) in the Jeju Healthcare Town project.

"Our international strategy is to globalize our market with global resources and domestic clients," says Zhang Yuliang, chairman of Greenland Group, adding that Greenland's overseas hotels and tourism properties mainly target Chinese tourists and students in the ROK. "Extending our market to an international level makes our company much more competitive."

Another interesting development in the international activity of Chinese realty companies is the fact that besides commercial property developers, there are also scores of residential property companies setting up ventures or projects.

In June this year, China Vanke said it intends to establish a business division in Hong Kong to oversee its overseas markets. The company president Yu Liang has indicated that markets in developed countries like the US are its primary investment target.

Another factor propelling the move outward is the stringent regulations that govern the domestic property market. Though the regulations have been formulated to prevent a bubble, industry sources feel they leave little maneuverability for companies to spread risk. The sources say Chinese companies are looking to minimize risks by investing in other countries, much like "not putting all the eggs in one basket".

"Chinese companies would love to look at how their capital can grow faster and how to provide better returns. That's why I think there will be a continuing demand for going overseas," says Alan Liu, managing director for North Asia at Colliers International, a leading global real estate consultancy.

Most of the Chinese companies are flush with funds, says Liu. At the same time, many cash-strapped foreign nations are opening up their real estate markets to attract more external investment. "Chinese developers can get preferential deals due to the depressed markets in the US and Europe. They are in a good bargaining position," Liu says.

Giving further credence to Liu's contention is the recent investment deal inked by Beijing Capital Land in France. The Chinese property company, listed in Hong Kong, plans to build an economic and trade cooperation zone in France, to take advantage of the preferential policies of France and Europe.

"Influenced by the European debt crisis, the French government is looking to get more Chinese companies to invest in France to boost the local economy and create more jobs," says Liu Xiaoguang, president and CEO of Beijing Capital Land.

Another important factor that is attracting Chinese property companies is the accommodative financing environment. China Business News recently reported that interest on loans is only around 4 to 5 percent in many foreign countries, with lower financing costs and multiple financing channels.

"It takes time to establish the reputation of Chinese companies in foreign markets, but many property companies are utilizing the opportunity to create a strong overseas financing platform," the newspaper said.

Some Chinese property companies are charting international plans, as they believe it will help improve their domestic image, says Frank Chen, executive director and head of commercial real estate services firm CBRE Research. "Most of the companies going abroad are already well known and have the potential to grow further in the domestic market," Chen says.

Vanke, the largest listed real estate developer by market value in China, is an ideal example of this case. The company accounted for less than 2 percent of total residential property transactions in China.

Even though competition in the domestic market is fierce, there is still room for real estate companies like Vanke to further extend their business within China.

"Many Chinese companies also feel that by becoming a multinational corporation, they gain a positive impression with investors," Chen says.

Though several Chinese property companies have expressed a desire to go abroad, it is unlikely to become a major trend in the near future, says Zhang Dawei, head of market research at Centaline Group.

"Outbound expansion is largely driven by the interests of the company owners. I don't think many Chinese property companies will follow that line, as it would mean leaving the safe domestic markets for untested foreign markets, without local experience or knowledge," Zhang says.

Like Zhang, Liu from Colliers International also believes that the property market is a business that needs local experience and knowledge for investment success.

"In China, you build properties and sell them, over a short gestation period. But it takes time in advanced markets such as the US to get a payback. That's the cultural mindset Chinese developers must overcome when they go overseas," Liu says.

zhaoyanrong@chinadaily.com.cn

(China Daily 10/19/2012 page6)