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China Property

For Grosvenor, the Asia-Pacific means Hong Kong, Shanghai and Tokyo - for now

Grosvenor is deepening its push into Shanghai, Hong Kong and Tokyo, and Benjamin Cha, the company's Asia-Pacific chief, aims to double its stake in the regional market to 20 per cent soon

PUBLISHED : Tuesday, 22 September, 2015, 11:47pm
UPDATED : Wednesday, 23 September, 2015, 10:53am

Benjamin Cha Yiu-chung, Grosvenor's Asia-Pacific chief executive since April, has decades of experience in property investment, development and management in a career built up from stints with the Mandarin Oriental Hotel Group, to developer HKR International and UBS, where he was the managing director of the bank's global asset management business.

Cha joined Grosvenor in September last year, just before the British property firm celebrated its 20th anniversary in the region early this year. He says he wants to double the region's share in the company to 20 per cent "sooner rather than later".

What is your portfolio in the Asia-Pacific? Does it include the China Merchants Tower in Beijing?

It is in our portfolio but we are in the process of divesting it. We have owned the asset for a number of years. We have added significant value and put some capital expenditure into it.

Our focus is to go deeper into Tokyo, Shanghai and Hong Kong. Some fundamentals in Beijing are very attractive. The Shanghai market is very liquid, deep and dynamic, so we would like to do more in Shanghai.

I wouldn't characterise Beijing as illiquid. The point is we do look for deep and dynamic property markets. We are interested in cities that have industry diversity and have a compelling long-term story.

In terms of sub-sectors, for example, in Tokyo, is it mainly in residential or other markets as well?

We have almost 15 years of track record in Tokyo. It spans across all sectors, most of it residential. We continue to be interested in residential. But we are certainly evaluating opportunities in the office and retail sectors. And that is the same across all three markets, in Tokyo, Shanghai and Hong Kong.

 

In terms of residential, the price in Tokyo has gone up quite a bit? Is it the right time to add investment? Is the price already too rich?

Tokyo has really been quite strong in the past two to three years and we have been able to benefit from that. I would not say prices are too rich. Grosvenor is a long-term investor. We are aware that residential values have been increasing substantially in the past two years. For some assets, we will hold for the long term, others we will continue to harvest value.

Does that mean you will dispose of some assets?

We are in the market now selling residential assets in Tokyo. They are strata-title apartments. The building is called Westminster Roppongi. We have been selling it for two years.

Will you still be focusing on the luxury end? Will you move to the city fringe or stay in the centre?

As in Shanghai and Hong Kong, our focus in Tokyo is very much in the city centre. Grosvenor globally focuses on opportunities in city centres and key gateway cities in particular.

In Shanghai, Grosvenor acquired a shopping mall in 2010. Are you looking at similar projects?

I think you are referring to Parkside Plaza. That was acquired by Grosvenor Fund Management, a sister company. We are currently the asset manager.

We are looking across all sectors. There are some interesting features about certain retail segments. But we have a very strong track record in the residential sector in Shanghai and across the Asia-Pacific region. Each market is at different points in the cycle. For example, there is some pressure on the retail sector in Shanghai. There is also pressure on the sector in Hong Kong. The sector in Tokyo is more favourable.

We follow monthly or quarterly movements, but they are much less important than the long-term view, like what are the secular drivers.

How long is the long-term view?

Our strategic plan looks at a 10-year horizon. Grosvenor is 300 years old. We see ourselves very much as fiduciaries and stewards of property assets. In Tokyo, Shanghai and Hong Kong, we are looking well beyond 10 years - 15, 20, 25 and even 30 years. We see very strong secular drivers for each city.

There is a philosophy within Grosvenor, which we call "living cities". It underpins our view on cities that we invest in, places that we develop and assets that we manage. We have a very holistic way of looking at properties.

What do you think about the current land prices in Shanghai? A rising number of developers seem to be complaining about fast price growth, which compresses their profit margins.

We certainly share the views about the land price appreciation. If we look at what has been happening in the Chinese housing market over the past two years or even 12 months, it has been volatile. But there seems to be some softer transition that was initially expected. A lot of that practically is destocking. If you look at construction starts on the mainland, it does not paint a rosy picture for the property sector. So it is surprising that there continues to be such strong appreciation in land prices.

Land prices are sort of proxy for how developers see the future. If they continue to bid up prices, they are expressing confidence in the future. At the same time, although sales have recovered somewhat, it seems to be more destocking and inventory overhang, rather than new construction starts or a return to the property sector five or six years ago.

So we certainly share those concerns. We hope market forces will dictate that trend. It does not make economic sense for developers to have zero margins, or no meaningful margin from their projects. Hopefully, we will start to see less strong appreciation in terms of land prices.

China recently relaxed rules on foreign investment in the real estate sector. What does that mean?

With a long-term view, one can be encouraged by some of the relaxation. But keep in mind, as recent as three years ago, whether it was home purchase or mortgage restriction, it was tightening.

We have interest in seeing the industry develop in a healthy way. China is going through a transition from an investment-driven economy to a consumer economy. Real estate will continue to play an important role. Our hope is that regulation will be mindful of the long-term macro objectives. One can see it as a catalyst for increased commitment in the market.

Our choice of Shanghai is based on a range of factors. Some degree of liberalisation is helpful in terms of the cyclical. But it is not fundamental to our decision.

Bear in mind demand from expatriates is a very narrow segment of the market; 99.9 per cent of the demand is going to be driven by local buyers. So I think there will be a ripple effect in terms of the overall market sentiment and signal that the Chinese housing market is liberalising and integrating with overseas buyers and capital. More important is what is going on in the main market, which is local.

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