Property investment

Mainland property seen warm next year

Veteran dealmaker says new leadership's push to make urbanisation its top priority will bring demand for real estate back into play

PUBLISHED : Friday, 28 December, 2012, 12:00am
UPDATED : Monday, 30 May, 2016, 5:01pm

The mainland's property market is expected to bounce back next year, propelled by the new leadership's push to make urbanisation its top priority.

That is the view of top China dealmaker Frank Tang, chief executive of FountainVest Partners, a China-dedicated private equity firm partly financed by Singapore's wealth fund Temasek.

Tang said the real estate business will "turn warm" next year, particularly in second- and third-tier cities on the mainland.

"We see that real demand from locals who want to buy their first home in many mid-sized cities, for example, in Henan province, is continuing to grow," said Tang, who co-founded FountainVest with three other bankers about five years ago.

Before FountainVest, Shanghai-born Tang held senior positions in Temasek and Goldman Sachs in Asia. He helped the two firms strike several landmark deals in China, including Temasek's investment in China Minsheng Banking, the mainland's sixth-largest bank by assets.

"The situation in second- and third-tier cities is very different from coastal cities where you may see more buying of properties for investment and even speculation," he added.

FountainVest is a shareholder of Hong Kong-listed Central China Real Estate (CCRE), a major private property developer in northern China. FountainVest invested in CCRE shortly after launching its first private equity fund, worth nearly US$1 billion, in late 2008 at the height of the global financial crisis when the legendary Wall Street bank Lehman Brothers declared bankruptcy.

Tang said he is "very satisfied" with the firm's investment in CCRE and will look for other investment opportunities in the property sector and businesses related to the trend of urbanisation on the mainland.

Late last month, following China's once-in-a-decade leadership transition, Li Keqiang, the premier-in-waiting, made a speech unveiling his vision for the continued growth of the Chinese economy in the coming years. He highlighted urbanisation as the next big theme for development and investment on the mainland.

More than half the country's 1.3 billion population lives in rural and relatively underdeveloped areas and analysts expect the new leadership to make big efforts to urbanise the sprawling nation.

Last month, Tang and his team successfully raised US$1.35 billion for FountainVest's second fund, and despite weak investor sentiment, it only took several months to get most of the money from institutional heavyweights such as Temasek, the Canada Pension Plan Investment Board, the Ontario Teachers' Pension Plan and Washington State Investment Board.

Tang said FountainVest has a typical investment target of between US$50 million and US$100 million for each deal, and prefers investments in private companies to state-owned enterprises (SOEs).

"I know some fund houses like to invest in SOEs or monopoly businesses in many cases, but this is not our style. We prefer private companies and I personally think they are the future of China," he said.

"Times are different. Today, many Chinese private entrepreneurs are well educated. They go abroad often and they know how important rules and regulations are. This is very different from what you may have seen in the 1980s when many local entrepreneurs didn't know how to manage their companies well," Tang said.

He said he is aware of the accounting irregularities that have occurred at some closely held Hong Kong-listed mainland companies in the past year, and that they are making private equity investors more cautious when considering pouring money into small- and medium-sized enterprises on the mainland.

"But in the end, good ones will survive and grow," he contended. "Those who disobey rules will be out of the game."