Tuesday 16 March 2010
State enterprises moving in on global real estate
China’s government-backed enterprises have widened their investment targets from finance to real estate assets around the world, and their shopping sprees are picking up pace as their financial muscle increases and overseas property prices drop, analysts say.
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State enterprises moving in on global real estate
Firms look to invest vast reserves
Peggy Sito
15 March 2010
China’s government-backed enterprises have widened their investment targets from finance to real estate assets around the world, and their shopping sprees are picking up pace as their financial muscle increases and overseas property prices drop, analysts say.
“China has emerged as a capital-exporting country. Next year, we will see a sharp jump in direct investments by state-owned enterprises in overseas property markets,” said Francis Li Chi-wing, a vice-chairman of property consultancy DTZ North Asia.
The central government’s 4 trillion yuan (HK$4.55 trillion) stimulus programme helped to strengthen the financial muscle of the state enterprises and fuel their investment wave, he said.
“The central government has given its blessing for expansion in the face of rising foreign exchange reserves,” Li said. “They would like to look for possibilities to deploy the capital other than into US bonds.”
China’s foreign exchange reserves, excluding gold holdings, amounted to US$2.39 trillion as of December, up 23.3 per cent from a year earlier.
In addition to this considerable war chest of foreign exchange, the drop in values of properties in global financial cities such as London and New York had created good buying opportunities, Li added.
“There are two types of purchases - one is prompted by occupation requirements, and the other is pure investment. And the pure investment part is growing,” he said.
Recent examples of this phenomenon included the bailout in August last year by the sovereign wealth fund, China Investment Corp, of the heavily indebted property company Songbird Estates.
The deal made CIC - which has already had investments in major financial institutions in the United States - the biggest real estate investor in Britain.
CIC, in a consortium with Qatar Holding and other investors, made a rescue rights issue to pay £880 million (HK$10.35 billion) owed by Songbird to Citigroup.
DTZ predicts a seismic power shift in the world’s money markets soon. “Some of our clients have set a high investment target in overseas markets next year,” said Will Chen, DTZ’s head of investment in North Asia. “This is a process, from preparation, feasibility study, half-way ready, and now they are ready to go.”
Chen said the number of firms it advised, from energy, aviation to finance, had jumped 100 per cent from few years ago. They all had eyes on billions of yuan worth of properties, and about 10 per cent were intent on pure investments.
With more than 200 large mainland enterprises in London and 300 in New York, there is huge demand for property, he said.
He described Australia as another target market since many mainland energy companies went to that country to buy offices for their own use and homes for their staff.
In the face of the new buying trend, Chen now heads a new division in the company targeting large mainland enterprises going abroad.
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