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Thursday 26 February 2009
Foreign investors shift focus to retail segment
Foreign investment interest in the mainland property market is on the rise, but investors have shifted their focus from development sites to retail property because of the uncertain market outlook, analysts said.
Foreign investment interest in the mainland property market is on the rise, but investors have shifted their focus from development sites to retail property because of the uncertain market outlook, analysts said.
“We received more inquiries from foreign investors this month,” said Alvin Yip Kwok-ping, the head of the investment department at DTZ in southern China.
However, the targets of those inquiries had changed, Mr. Yip said. Joint-venture development projects that were favoured in the past were no longer heading the shopping lists of investors.
Instead, investors were now interested in completed projects, mainly retail properties in centres of first-tier and capital cities.
“Investment risks in development projects are higher when the outlook for the property market is uncertain,” Mr. Yip said.
“Funds now tend to look for projects offering immediate rental income and a yield of 8 to 9 per cent.”
Given tightened lending conditions and the uncertain market outlook, budgets have also been cut to between US$25 million and US$80 million this year from US$50 million to US$100 million last year.
Contributing to the change in focus is the fact that the retail market sector has performed better than the office market and the residential sector since the onset of the financial crisis.
Rentals in shopping centres with good management and in prime locations have shown a surprising rise in recent months.
High-end retailers have not stopped their expansion plans in the country while the government has been pushing for an increase in domestic consumption.
“It seems China has become the only choice for foreign investment funds and is the only country expected to have positive economic growth in Asia this year,” Mr. Yip said.
DTZ said the investment market would turn active in the second half of the year although the number of transactions was not expected to exceed the 40 deals done last year.
Albert Lau, the managing director of Savills Shanghai, said foreign investment funds were showing renewed interest in buying property on the mainland but the major hurdle remained the credit conditions imposed by lenders.
Last year, foreign investors faced the problem of complicated procedures in buying property in the country. “It took three to six months to get government approval to buy property and sometimes you had no idea how long you might have to wait,” Mr. Lau said.
Some investors were forced to give up their acquisition plans due to changes in the market.
Now foreign investors faced a wait of no more than six to eight weeks and their biggest challenge was to secure financing to fund their investments, Mr. Lau said.
This partly explained the change in investor focus, he added.
Development sites were no longer welcomed by foreign investors due to the uncertain market outlook and instead investors were targeting completed projects with rental income because it was easier to get financing for such deals.
But gaps remained in the expectations of buyers and sellers, Mr. Lau said.
Many foreign investors believed asking prices were still too high while sellers expected the government to unveil more measures to boost the market when the National People’s Congress and the Chinese People’s Political Consultative Conference met next month, he said.
Mr. Lau said landlords could cut their asking prices if no such measures were forthcoming. “We will have a clearer picture in the second and third quarters,” he said.
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Foreign investors shift focus to retail segment
Yvonne Liu
25 February 2009
Foreign investment interest in the mainland property market is on the rise, but investors have shifted their focus from development sites to retail property because of the uncertain market outlook, analysts said.
“We received more inquiries from foreign investors this month,” said Alvin Yip Kwok-ping, the head of the investment department at DTZ in southern China.
However, the targets of those inquiries had changed, Mr. Yip said. Joint-venture development projects that were favoured in the past were no longer heading the shopping lists of investors.
Instead, investors were now interested in completed projects, mainly retail properties in centres of first-tier and capital cities.
“Investment risks in development projects are higher when the outlook for the property market is uncertain,” Mr. Yip said.
“Funds now tend to look for projects offering immediate rental income and a yield of 8 to 9 per cent.”
Given tightened lending conditions and the uncertain market outlook, budgets have also been cut to between US$25 million and US$80 million this year from US$50 million to US$100 million last year.
Contributing to the change in focus is the fact that the retail market sector has performed better than the office market and the residential sector since the onset of the financial crisis.
Rentals in shopping centres with good management and in prime locations have shown a surprising rise in recent months.
High-end retailers have not stopped their expansion plans in the country while the government has been pushing for an increase in domestic consumption.
“It seems China has become the only choice for foreign investment funds and is the only country expected to have positive economic growth in Asia this year,” Mr. Yip said.
DTZ said the investment market would turn active in the second half of the year although the number of transactions was not expected to exceed the 40 deals done last year.
Albert Lau, the managing director of Savills Shanghai, said foreign investment funds were showing renewed interest in buying property on the mainland but the major hurdle remained the credit conditions imposed by lenders.
Last year, foreign investors faced the problem of complicated procedures in buying property in the country. “It took three to six months to get government approval to buy property and sometimes you had no idea how long you might have to wait,” Mr. Lau said.
Some investors were forced to give up their acquisition plans due to changes in the market.
Now foreign investors faced a wait of no more than six to eight weeks and their biggest challenge was to secure financing to fund their investments, Mr. Lau said.
This partly explained the change in investor focus, he added.
Development sites were no longer welcomed by foreign investors due to the uncertain market outlook and instead investors were targeting completed projects with rental income because it was easier to get financing for such deals.
But gaps remained in the expectations of buyers and sellers, Mr. Lau said.
Many foreign investors believed asking prices were still too high while sellers expected the government to unveil more measures to boost the market when the National People’s Congress and the Chinese People’s Political Consultative Conference met next month, he said.
Mr. Lau said landlords could cut their asking prices if no such measures were forthcoming. “We will have a clearer picture in the second and third quarters,” he said.
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