China is still the place to be

PROPERTY investors have been paying more attention to China over the last 18 months as real estate markets recover across the globe. China, and other developing markets in the Asia-Pacific region, are now seen to be more attractive to investors as they have to look harder and further for bargains, analysts said.

"We're seeing that core real estate assets are still in strong demand across Asia-Pacific," said Greg Penn, CB Richard Ellis' executive director of investment properties for Asia.

"Global real estate investors including private equity, pension funds, and Reits are taking advantage of the still low financing costs on prime assets and continue to tap into the growing pool of capital looking to secure or increase presence in the Asia-Pacific region."

DTZ's flagship Money into Property report similarly observed that the recovery in the global real estate landscape is being driven by Asia-Pacific, which saw a 14 per cent increase in invested stock in 2010.

And within the region, growth in China and Australia (24 per cent and 25 per cent respectively) has led Asia-Pacific's regional growth. China has now joined the US and Japan as the third market globally with total invested stock surpassing US$1 trillion, DTZ said.

David Green-Morgan, head of Asia-Pacific research at DTZ, noted that developing markets (such as China) dominate the "warm" and "hot" categories in the report. The DTZ report classifies markets according to their attractiveness to property investors.

But in spite of China's appeal, investors still preferred to put their money into the more developed markets of Japan and Singapore in the first quarter of this year.

According to a report from CBRE, Japan drew the most direct real estate investment across the Asia-Pacific in Q1 2011, accounting for 37 per cent of total investment across Asia-Pacific.

Singapore was the second-most active market, accounting for 19 per cent of the total sales volume in Q1 2011. China came in third, drawing 18 per cent of real estate investment in the first three months of this year.

CBRE's investment transaction data is based on real estate transactions valued US$20 million and above. It included office, industrial, retail, and mixed use properties but excludes development site transactions.

Industry players noted that investment into China could grow faster if not for the fact that it is often difficult for foreign investors to break into the market. Right now, local investors continue to dominate investment activity.

Policy measures could also be causing concern.

The Chinese government has worked to maintain a stable property market by implementing a slew of measures to curb excessive speculation and ensure market sustainability.

And although recent policy initiatives have been aimed at cooling the residential sector, it is feasible that the government may look to intervene in the commercial property sector if necessary, analysts said.

Singaporean real estate players are aware of the risks, but are still keen on China. Most said that they take a long-term view of the investment potential of the country's many cities, and note that being present across sectors and in several cities helps to mitigate risk.

"China remains a key market for Ascendas and we see much potential in this growing economic power," said Wong Wing Kien, chief executive of Ascendas' China unit.

"We are keen on development opportunities in China, where Ascendas can leverage on our expertise to provide end-to-end real estate solutions to businesses looking to enter or expand in China. We are also exploring opportunities to set up more real estate funds to invest in quality commercial offices and integrated developments in China."

Ascendas first entered the China market in 1995, when it pioneered the ready-built facility (RBF) industrial park concept in Suzhou.

Since then, the business space provider has broadened its offerings - growing its portfolio from just industrial space to products including IT parks.

Today, Ascendas' operations span major cities such as Shanghai, Suzhou, Beijing, Shenzhen, Dalian, Nanjing, Xi'an, Tianjin, and Hangzhou. The group currently has $1.6 billion worth of assets under management, providing nine million square feet of quality business space to both multi-national corporations and local companies.

A spokesman for CapitaLand said that China is the group's most successful overseas market and will continue to grow given the demographics, massive urbanisation programme, and strong economic growth.

The group added that going into multiple sectors - such as commercial and mixed developments - helps the group ride through any volatility. CapitaLand is also diversified in terms of its geographic spread. First-, second-, and third-tier cities and markets allow the group to diversify policy risks.

"CapitaLand is a long-term investor in China and remains optimistic about the real estate market," the spokesman said. "With a balanced portfolio of properties across various real estate sectors, the group is well-positioned to benefit from the country's strong economic growth."

Keppel Land also said it wants to grow its presence in China, and will focus on townships, prime residential, and commercial developments.

As at end-2010, the property group had more than 20 per cent of its assets invested in China. China also contributed more than 30 per cent of the group's total net profit.

"China's strong fundamentals to support growth in the long term," said a Keppel Land spokeswoman. "Demand from a growing middle class will support residential townships and developments in secondary cities."

Looking ahead, analysts said that they expect property investment into China to continue growing on the back of strong economic growth, lack of legacy debt issues, and strong investor interest.

In particular, retail is expected to remain a hot sector with both local and foreign investors looking to secure some exposure to rapidly expanding domestic retail consumption, analysts said.

Singaporean developers can stand out by offering real estate solutions that they have an edge in, the analysts added. Ascendas, for example, said it gives its customers a convenient, transparent, and hence lower-risk business environment so that they can focus on growing their business quickly.

"We are leveraging on the advantage of our experience in China to innovate on our solutions so that we stay ahead in the market," said Mr Wong. "We continue to anticipate and innovate on new products and services to position ourselves to meet future requirements."

For example, Ascendas has worked to create comprehensive integrated communities in its integrated developments in Dalian, Hangzhou, and Suzhou.

In addition to providing quality space and infrastructure, the group also puts a lot of thought into elements such as the park's master plan, building designs, lush landscaping, amenities, and even artwork.

Keppel Land, on its part, will continue to focus on township developments - an area where it has a lot of expertise. There is an increased demand for good quality large-scale integrated township developments with rapid urbanisation, the developer said.

This article was first published in The Business Times.