image

China Property

Chinese developers are looking beyond the mainland to expand property business

Constructors are following customer demand for overseas homes

PUBLISHED : Wednesday, 06 April, 2016, 10:16pm
UPDATED : Thursday, 07 April, 2016, 1:02pm

A cocktail of concerns over future growth and earnings stability mixed with strong demand among buyers is driving mainland property firms to pour billions of dollars into overseas property markets.

With surging property prices at home raising fears of a price bubble that could collapse, developers are eyeing not only stable returns from overseas markets but the burgeoning demand from many ordinary Chinese for a home away from home, especially those with global ambitions for their children’s education.

Jeremy Helsby, chief executive of global property services firm Savills, said the rising number of Chinese students studying abroad has prompted families to buy a home beyond the mainland.

“They are buying homes for a long-term investment,” he said.

Chinese developers aggressively bidding for government land in Hong Kong

“It is a diversification of their assets, which is often tied to education. They want a second home abroad, either for the children or for themselves.”

According to the Ministry of Education, 460,000 mainland students went abroad to study in 2014, up 11 per cent from the year before.

A survey by New Oriental Education, an education service provider, showed that 60 per cent of Chinese parents with children studying abroad were willing to pay more than 800,000 yuan for their offspring’s education.

Michelle Lu, a Shanghai resident who owns two apartments in the city, is one such buyer.

“My son’s education is the largest investment in my life,” Lu said. “It’s not a bad idea to sell one property in Shanghai to use the money to buy a home in the US.”

She added that the proceeds from the sale of one flat in Shanghai were enough to pay for a home in New York or Los Angeles.

It’s not a bad idea to sell one property in Shanghai to use the money to buy a home in the US
Michelle Lu, a Shanghai resident

The Shanghai property market has been one of the hottest since the second half of last year, with prices of pre-owned homes surging at least 50 per cent during the past 10 months. The average two-bedroom apartment in the city now sports a price tag of more than 5 million yuan, according to local property brokers.

S&P sees more defaults likely as Chinese developers 'deteriorate'

Monetary easing by the central bank, heightened fears of a short supply of land and rampant fund flows from the shadow-banking system into the home market have been some of the reasons behind the gains and have sparked worries about a boom-and-bust cycle.

For buyers like Lu, homes built by mainland developers in Western countries are favoured because they believe Chinese companies understand their needs and their lifestyles .

“A home built by a Chinese developer at a proper location is always our first choice,” she said. “They should speed up overseas expansion now that it’s a clear trend that more and more Chinese people are moving to foreign countries.”

Real estate has been the crown jewel of the mainland’s economy in the past two decades. Property construction and sales have constantly risen despite government measures to cool things down.

Wanda’s first Beverly Hills adventure won’t be last for Chinese developers

China’s economy expanded 6.9 per cent in 2015, the slowest pace in 25 years, and authorities have embarked on a “New Normal” strategy of pursuing slower but sustainable economic growth.

Beijing wants to spur economic growth through domestic consumption rather than via exports and investment.

Analysts said the largest mainland developers, including Wanda Group, Evergrande Real Estate Group and Greenland Group, are also all trying to diversify into non-property businesses in a move to operate under what they term a light-asset business model.

Greenland is taking its expertise in property development and a ‘go-global’ drive to create a cross-border e-commerce platform that allows millions of mainland shoppers buy foreign-made food, clothes and other daily necessities.

Evergrande is now consolidating its foothold in a clutch of non-property businesses including spring water, grain and oil, dairy and health care sectors as well as football.

Wanda has strengthened its cinema operations in past years to cater to Chinese willing to drop hundreds of yuan on cultural experiences.

Chinese developers eye overseas hotel deals

Lu meanwhile sees buying a second home in the US as a way to better manage personal wealth.

“It’s advisable to diversify asset allocation,” said Lu. “It won’t be wrong to put part of your assets in a mature and stable Western country.”

Other factors behind the search for overseas property include thorny social issues in the mainland, including food safety, worsening pollution, a scarcity of educational choices and opportunities, a shortage of quality medical resources and unemployment.

For Chinese developers and institutions such as insurance companies, it’s also a savvy move to increase their outbound investments, according to David Green-Morgan, global research director at property consultants JLL.

He predicted that Chinese insurers could pour as much as US$240 billion into overseas property markets if they all chose to use the full quota of 15 per cent of their assets for foreign investment allowed by the government .