Global funds scramble to grab slice of property pie

   Date:2007/06/26     Source:

FOREIGN investment funds still remain keen to capture a slice of China's lucrative property market, despite government measures to restrict overseas capital in the sector.

Foreign investment in the country's property development reached 22.2 billion yuan (US$2.88 billion) in the first five months of this year, a rise of 89.9 percent from same period a year ago, according to the latest figures from the National Bureau of Statistics.

"In the eyes of many foreign investors, the downside of investing in China's property sector is small, given the yuan's appreciation, attractive rental yields, rapid urbanization and fast-rising purchasing power of the local middle class," said Xavier Wong, head of research at Knight Frank, a London-based independent global property consultancy.

Just recently, two foreign investors have secured deals to tap into the country's real estate market.

Aetos Capital, the US property group and hedge fund manager, has struck a deal to form a partnership for real estate investments with China Life, the country's largest insurance company.

Sources close to the US company, which was founded by James Allwin, a former Morgan Stanley banker and already one of the largest Western investors in Japan's real estate market, said that between US$500 million and US$600 million a year will be devoted to China, according to earlier reports by FTChinese.com.

Aetos has a US$2.2 billion fund dedicated to investments in Asia's real estate market, which is mainly focused on Japan.

And earlier this month, Glitnir, a leading Icelandic financial services group, announced that it has combined forces with CGC Overseas Construction Co Ltd, a subsidiary of Sinopec Star Petroleum Co Ltd, to start its first real estate joint-venture project in China.

Under the agreement, Glitnir will take a 20 percent stake in the JV company while CGCOC, a major provider of infrastructure, energy exploitation and trade services, holds the remainder.

The two parties will jointly develop a residential compound in a prime location in the city of Shenyang, capital of Liaoning Province in northeastern China.

The project, covering 230,000 square meters, will become one of the largest residential projects in Shenyang.

"We believe this is a landmark transaction for Glitnir in China," said Magnus Bjarnason, executive vice president, International Banking of Glitnir. "This prominent investment role in China's booming real estate market further diversifies our operations in China."

The company also said that its presence will probably enable and encourage more Scandinavian and international investment to flow into China.

Global property funds have remained very active tapping the increased demand for properties in Asia and other emerging markets.

Morgan Stanley, the biggest real estate investor among all Wall Street banks, announced last week that it has raised US$8 billion to create the world's largest global property fund.

The New York-based company said it will invest almost half of the money in Japan, where the longest expansion since World War II is pushing up rents and fueling a building boom in Tokyo, and about 25 percent in countries including China and India, where apartment and office construction is booming as businesses grow.

"The record size of this fund, both for Morgan Stanley Real Estate and among real estate investment managers, is indicative of strong capital flows into real estate," said John Carrafiell, global co-head of Morgan Stanley Real Estate Investing.

In Shanghai alone, Morgan Stanley has so far made diversified investments spanning residential, commercial and office developments.

In February, Morgan Stanley purchased a land parcel in the city's downtown Luwan District by joining forces with a local developer. The 24,000-square-meter site, designated for commercial and office use, was bought for nearly 1.3 billion yuan.

The deal was believed to be the first of its kind by the US real estate investor as it involves property development, which is usually linked with higher risks and returns. Earlier deals secured by Morgan Stanley in the city over the past few years were almost all en-bloc purchases of high-end residential projects, industry sources said.

In January, Morgan Stanley finished the purchase of a luxury serviced apartment project in downtown Xujiahui area at a price of 530 million yuan.

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