Chinese property firms' overseas expansion

Property firms have quickened their pace of offshore expansion to meet the appetite of Chinese consumers and find new opportunities beyond the tepid domestic property market.

In the first quarter of 2014, institutional investors' offshore property investments rose 25 percent year-on-year to 2.1 billion dollars, while the sum going to residential property grew by 80 percent, according to Jones Lang LaSalle Inc, a global real estate services and investment management company.

The overseas residential property investment by China's institutional investors in the quarter exceeded 1.1 billion dollars, smashing last year's record of 600 million dollars. The real estate projects in Britain, Australia and the United States were most favored by Chinese investors.

Offshore expansion by Chinese investors gets more impressive than the domestic market because it has a higher potential profit, analysts say.

Wanda Group, one of China's largest property developers, announced in January that it would invest up to 3 billion pounds (5.1 billion U.S. dollars) in British cities. Greenland Group also announced earlier this year that their overseas investment reached almost 35 billion yuan (5.6 billion U.S.dollars) in 2014.

Developers, abundantly liquid because of previous successes, are diversifying their portfolios, focusing on gateway cities, such as London, New York, Los Angeles and Singapore, according to Zhu Fei, researcher from Yuexiu Property Institution.

With the financial environment in foreign countries relatively benign compared to China, some property firms have gone public in Hong Kong or the United States, Zhu said.

GROWING APPETITE

The upsurge in overseas expansion can be attributed to the growing appetite of Chinese people for residential properties in pursuit of capital security, access to education and health care, permanent residency and citizenship, to name but a few.

Around 150,000 Chinese emigrate overseas annually, which is expected to generate a purchase demand for properties worth more than 75 billion yuan, said Li Qingwen, general manager of DTZ Real Estate Consultancy Company Guangzhou.

Traditional destinations of immigrants top the money flows, said Fu Zhenhuang, analyst from Deloitte, adding that investment has been most active in London, New York, Singapore, Sydney, Manchester and Hong Kong.

Statistics from Savills, a real estate agent, suggest that Chinese consumers invested 13.5 billion dollars in the overseas market in 2013, almost double that of 2012.

Huang Yuwei, executive CEO of an overseas property investment company, said his company sold less than 10 houses a year seven years ago, and now move 15 to 20 daily.

"Investing in overseas property will be much more impressive in the next ten years," he said.

Calculations based on the asset scale of the Chinese high net worth individuals suggest that 1,100 billion yuan will flow into overseas properties.

HIDDEN RISKS

Risks are accompanying this overseas exploration. Zhao Yongshuang, deputy CEO of Yihe Real Estate, said the group has developed in New York, Boston, Los Angeles in the United States and also Mauritius in Africa because of the complete financial and credit system in those markets. "However, Chinese enterprises have to be cautious,"he said.

Political instability tops the list of risks, said Long Bin, head of the Hopefluent Real Estate Economic Research Institute.

Beijing Zhongkun Investment Co. Ltd had proposed to buy 300 sq km of an island in Iceland, but the deal failed after two years of waiting for government's approval.

"The industry is teeming with risks that are easily ignored due to its high profit. The property market scale, tax and interest rate fluctuation, political frictions, any of these factors could lead to failure," said industry insider Zhang Yong.

Zhu Fei noted Malaysia as an example, where the market is cooling down as investors sit on the fence after the MH370 tragedy.

"They should have investigated the risks thoroughly and avoided blind investment," said Zhu Fei.