AS COMPETITION intensifies in Australia, property investors are increasingly turning to the rapidly expanding Chinese market, despite concerns about corruption and cultural and legal differences.
Foreign investment in Chinese property has lagged investment in manufacturing, but market participants say interest is growing rapidly.
Anthony Chiminello, director of Bridgewater International, says more wealthy people are looking to invest in property in China, particularly in residential. “There’s definitely been greater interest,” he says. “Traditionally, private investors have been quicker to act, opposed to corporations and property funds only because they are not constrained by red tape.”
Glenn Sommer, national director of industrial Jones Lang LaSalle Australia, says: “There are tremendous opportunities. Certainly, institutions in Australia are looking into mainland China both in commercial and industrial.”
Recently, Macquarie Property’s investment banking business announced a deal to purchase a 26-storey residential tower in Shanghai. Macquarie Bank along with Macquarie Goodman also have plans for a major push into the Chinese property market, according to documents filed in Singapore.
But tracking how much Australian money ends up in Chinese property is hard to do.
Overall foreign capital — not just Australian — makes up 15 per cent of the Chinese real estate market, according to one report.
JLL’s head of research, Kathryn Matthews, says the increased interest in investing overseas is part of a larger trend. “Global capital flows are on the rise,” she says. “Investors are more willing to look cross border and cross region to find opportunities.”
Part of the attraction of overseas property investment — and of emerging markets like China — is that there are fewer and fewer property investment opportunities in Australia, JLL’s Mr Sommer says.
“There are millions of dollars per month pouring into institutional funds from super and there are increasingly fewer places for those funds in Australia, which is driving yields down.”
China’s attractions are obvious: its size and its rapid economic growth and urbanisation.
But there are challenges. “It’s very dangerous just to assume that the market is going to grow on the back of 1.3 billion people,” Bridgewater’s Mr Chiminello says. “We really have to look at the trends in the population and what is happening.”
He says investors have been hesitant due to uncertainty about the legal system, cultural differences and language. JLL’s Mr Sommer says a lack of transparency and planning are also major issues. “They have probably got to streamline their planning approval process and make it more transparent; there’s something like 30 approvals,” he says. “Understanding the taxation system and understanding what China wants to get out of investment is also an important factor.”
According to international organisations, corruption is a major issue. “Corruption is one of the most important problems in China today,” a recent OECD report noted. “It continues to pose a significant challenge as a particular feature of the transition process.”
Ms Matthews hopes that China’s entry into the World Trade Organisation in 2001 will see improvements in its legal system and transparency. “It’s hard to make an informed decision,” she says of the lack of information on the market at present.
One thing to consider, market participants say, is the importance of a local partner or someone who knows the Chinese market before investing.
Source: theage.com.au
