Beware of misconceptions, investors warned

Companies prosper helping Chinese buyers ready to put down major sums in Western property markets

Chinese companies need professionals to resolve problems for them when making real-estate related investments overseas, the global real estate consultancy JLL says.

"Chinese companies need to respect local market practices," says Julien Zhang, head of the China business desk at JLL. "The Western property market has a whole system of very clear, efficient and widely accepted norms. One can't possibly do that all by oneself. Chinese companies need to hire professionals in all sorts of things to help them get the deals done, including tax, legal affairs, contracts."

Chinese companies have some misconceptions about the Western property market, Zhang says. For one, it does not soar like the Chinese housing market did in the past 10 years. Second, many Western sellers look for the most suitable buyers instead of the one who pays the most. Third, the government is a facilitator rather than a decision-maker in the housing market.

Chinese companies' outbound real estate investment has been picking up speed in recent years. According to a report by JLL, China's large-scale outbound commercial property investment last year totaled $16.5 billion (14.7 billion euros), 46 percent more than in 2013, of which half went into office buildings and 35 percent went into residential land to be developed.

Of the $16.5 billion invested in commercial property, $11.2 billion went into existing assets, office buildings and hotels for the most part. Of these assets, 49 percent, or $5.5 billion, went to Europe, with $4 billion going to London. The top five transaction volumes of China's overseas property investment took place in London, New York, Tokyo, Paris and Sydney.

"London has been the favorite destination for China's commercial property investment for two years in a row," Zhang says. "The city was the most active real estate market, with $44.4 billion in transaction volume. It means that China's overseas real estate investment has been in line with the global trend. Europe's mature housing markets will continue to attract Chinese investors and developers in the future."

The global property search company Knight Frank says Chinese outbound real estate investment rose about 24 fold from $600 million to about $15 billion between 2009 and 2014.

Developers and insurance companies have taken the lead in the growth. Major developers such as Vanke and Greenland Group have purchased land overseas. Among the 15 insurance companies with more than $1.1 billion in annual premium income, four, among them China Life and Ping An Insurance, have bought properties overseas.

The investment research firm Rhodium Group says that total investment in Britain's real estate sector by Chinese companies and individuals stood at $2.3 billion last year, which included many office buildings in London.

The global real estate agent Savills has predicted that London will remain the most active city in real estate investment this year. Savills forecasts that housing prices will rise about 5 percent this year, and rents will rise by more than 15 percent over the next five years.

"China's overseas real estate investment is powered by many sectors," Zhang says. "First, Chinese state-owned banks have established a lot of offices and branches overseas as part of China's national strategy to internationalize its banking service. Another key player in this overseas drive is technological companies such as Huawei Technologies Co Ltd and ZTE Corp. Third, trade companies have also been expanding their business overseas. Now real estate and other industries are looking to diversify their portfolio by buying up properties abroad."

Last year JLL acted as the exclusive agency for Tamweelview European Holdings SA to sell the 192-room, high-end hotel located on the Champs-Elysees in Paris to a subsidiary of Hong Kong Kai Yuan Holding Ltd for 345 million euros, the highest price for a single hotel sold in the French capital.

JLL helped in the search for buyers for Commercial Estates Group for a site for Europe's tallest residential tower, in the Canary Wharf financial district of London last year. After an earlier agreement with an Irish property developer failed to reach fruition, Greenland Group bought the site to build a 74-story tower with 150 hotel rooms and 575 residential apartments in March. The company says it expects the site to be worth 7.5 billion yuan ($1.2 billion; 1.1 billion euros) once complete.

"We have noticed that starting from 2012, Chinese companies have been paying increasing attention to overseas markets," Zhang says. "Going with this trend, JLL established its China desk in 2012, dedicated to helping Chinese companies go overseas.

"The understanding of Chinese culture and Chinese companies is a great JLL asset. That's why we set up our China desk center in Beijing while working with colleagues overseas who come back to China every so often."

JLL, founded in 1783, has 237 offices worldwide. In 2013, it says, it helped to realize more than $99 billion in global property sales, mergers and acquisitions, and financing.

"We are looking for talent worldwide to join our China desk team who must speak fluent Chinese and have rich experience in real estate," Zhang says.

"My vision for my team is that it's definitely going to grow bigger and bigger as Chinese companies become a significant part of our customer base."

yangziman@chinadaily.com.cn

(China Daily European Weekly 06/26/2015 page20)