Consultants ride mainland growth

PUBLISHED : Wednesday, 08 April, 2009, 12:00am
UPDATED : Wednesday, 08 April, 2009, 12:00am

The pace of urbanisation on the mainland and buyer demand for properties built to internationally accepted codes is driving huge demand from developers for the services offered by professional property managers and consultants.

As a result, the mainland offices of foreign property consultants have enjoyed double-digit growth in revenues and profits over the past decade and there is no sign of a let-up in this promising performance, say property experts.

The growth has been sustained despite the global economic slowdown and industry players said continued demand for professional services would now be ensured by regulatory and policy changes affecting the property sector.

Mainland insurance companies were recently allowed to buy property assets for long-term investment, industry watchers pointed out, and the central government also plans to launch real estate investment trusts (reits) to the market. These changes would create fresh demand for asset management services.

'The global economic slowdown will therefore not be a drag on the development of the industry in China,' said James Wong, Jones Lang LaSalle's international director and head of property and asset management, North Asia.

'As long as there are buildings being completed, there will be a need for someone to manage them,' he said, adding that the portfolio of properties under management by Jones Lang LaSalle on the mainland had shown an increase of 15 to 20 per cent in gross floor area every year for the past few years.

Unlike in developed countries, where property management is a centuries-old industry, the service has had only a brief history of 10 to 20 years in China, developing in tandem with property development. But as demand for private housing and prime office space built to international standards increased, this had placed increasingly higher demands on the services sector, Mr Wong said.

Jones Lang LaSalle, which manages 24 million square metres of property on behalf of landlords, is one of the five key international players in the mainland's property management industry. The others are CB Richard Ellis, DTZ, Savills, and Colliers International and between them the consultancies dominate at the high-end of the property market.

'The pace of urbanisation on the mainland is very fast, creating a huge market in the sector,' said Alfonso Chu, the executive director of CB Richard Ellis' asset services division in Greater China.

The proposed launch of reits and the increasing trend of insurance companies buying properties for long-term investment would also create new demand for property management services, he said.

CB Richard Ellis manages 20 million sq metres of commercial, retail and residential property space and Mr Chu expected the portfolio to grow 30 to 40 per cent this year in line with industry expansion.

He said CBRE had boosted its presence rapidly and now operated from 13 offices in mainland cities. Just a few years ago its presence was confined mainly to tier-one cities such as Beijing, Shanghai and Guangzhou.

Billy Chau, the managing director of Savills Beijing, said the leading edge for foreign property management companies was the expertise they bring to the management of grade-A office space, as well as high-end retail and residential properties. 'We focus on mixed-used developments in the central business districts of mainland cities. Without an international perspective and global networking, domestic players cannot compete with us.'

But he said Savills would not enter the mass housing market as the management fees were too low to cover costs. It would confine itself to high-end residential properties with management fees of at least 5 yuan per square metre a month.

Mr Wong said: 'It is difficult to make a profit in managing mass housing properties. Developers generally manage their own properties which would be loss-making but could be used as an incentive to lure buyers.'

CB Richard Ellis has teamed up with mainland developer China Vanke to manage the developer's high-end residential properties.

DTZ is the most aggressive of the property service firms and has a portfolio of 100 million sq metres of space under management, about half of which is residential.

'This is a big market that you cannot miss,' said Jochen Kleef, the head of professional services, North Asia at DTZ, who added that the profit margin in the industry averaged in the low double-digits.

Consultants said property management companies had adopted a reward system under which a developer paid the management company 5 to 15 per cent of the management fees collected from owners, with the remainder spent on repairs and maintenance.

They said the definition of property management on the mainland in many developers' minds was confined to rental collection, security and cleaning services. It would take time for them to understand concepts such as asset management.