Property fund eyes profit in squeeze
Singapore-based property fund Real Estate Capital Asia Partners (RECAP) is on the prowl for mainland investment opportunities as smaller developers come under liquidity pressure because of falling home sales and a tightening credit market.
'If the mainland government's tightening policy continues, we believe there may be a consolidation of the property development industry in China,' the real estate fund's founder and managing director, Suchad Chiaranussati, said.
'Developers with less healthy balance sheets will be under more pressure to restructure their portfolios. In particular, mid- to small-sized developers that have fewer financing options may be the ones under more pressure.'
Beijing in January announced eight measures to cool the property boom, including curbs on lending and limits on the number of flats that can be bought by registered residents (the limits vary from city to city). As a result, sales plunged.
Ratings agency Moody's Investors Service on Monday released a report saying Chinese developers face the challenge of lower-than-anticipated cash flows arising from slowing sales a a time when they face difficulty in securing sufficient credit from domestic banks. As an indication of this trend, the number of new homes sold in Beijing fell 23 per cent year on year in the first half of 2011, it said. 'This situation will continue for the next six to 12 months as the Chinese government is unlikely to relax the regulatory initiatives it has undertaken to restrict property purchases,' the report said.
RECAP believes there will be opportunities to invest in commercial, retail and hospitality assets in China over the next six to 18 months.
'So far this year, we have been looking at investment opportunities of various property types in second-tier cities in China,' said Suchad, who held positions in investment bank JPMorgan and Temasek Holdings before establishing the real estate fund.
RECAP, which was founded in 2004, has affiliated offices in Singapore, Hong Kong, Shanghai, Bangkok and Seoul. It has 'in excess of' US$400 million of equity invested in Hong Kong and mainland China, Singapore, Thailand, and Japan.
It aims to invest one-third of its capital in Japan, one-third on the mainland and Hong Kong, and one-third in Southeast Asia.
'Our priorities will be in China's first-tier cities and in Japan. Given the economic situation and the financial stress due to the earthquake, we see more and more attractive deals in Japan when compared with other Asia countries,' said Suchad.
He declined to disclose details of RECAP's investments, but the Altro residential project in Sai Ying Pun on Hong Kong Island is one of them. The 28-storey tower will go on the market as other major Hong Kong developers such as Sun Hung Kai Properties and Sino Land are set to launch their developments.
'Given the size of our funds, we aren't in a position to compete against the larger local developers,' said Suchad. 'Instead, we will target properties that have private owners, are in an area marked for growth, or show potential.'
He said the Sai Ying Pun project was such an example and with limited new supply in the area, together with a low interest rate environment, he believed it was still a good time to launch the property now.
The development cost of Altro will be more than HK$500 million. The land was acquired this year through a private treaty sale, RECAP said. Altro, expected to be completed in 2014, will provide 41 homes.