PERE ASIA: ‘Days of Guanxi are over’

The chairman of one of China’s biggest private equity real estate firms warned delegates at PERE’s annual Asia Summit in Hong Kong that the days of Chinese property investors relying on Guanxi, or relationships, to get good deals done, are largely over.

Goodwin Gaw, chairman at Hong Kong-based firm Gaw Capital Partners, told the 400-delegate strong conference, that China’s ‘golden days’ were probably over.

His comments come at a time of less confidence in the Chinese property market from international investors as the country’s government repositions certain of its policies, allows certain of its developers to default and pursues a comprehensive anti-corruption program aimed at cleaning up the sector. Added to these factors is a slowing overarching economy too.

“Obviously China is slowing and when China has a sneeze the rest of Asia catches flu. We’ll see how things go,” Gaw, who was also chairing the conference, said.

“The days where Chinese developers and real estate owners purely using Guanxi to get properties that make obscene amounts of profit – those days are over.”

But Gaw also pointed out that, at the same time, the Chinese property market should transition to a more institutionalized market where skills, knowledge and ability to create value will determine its ‘winners over the losers.’

Gaw was addressing the audience at a time when his firm’s fourth and record-sized opportunity fund, the $1 billion Gateway Real Estate Fund IV is almost 70 percent deployed just one and a half years into its investment period. It is expected that much of the remaining capital will be committed to investments that sit outside of its China principal target, possibly in Southeast Asia.

His words were echoed in a later panel session in which John Pattar, who leads CLSA’s private real estate investment business, said it would be prudent, generally speaking, to “hold through the current period” in China.

“At least for another 12 month period,” he said, “Given the current anti-corruption drive, no one wants to do high-profile deals.”

Nick Crockett, executive director and head of capital advisors for Asia at property services firm CBRE, offered a relatively more optimistic take when he said: “There are still opportunities in China if you look under rocks. In fact, China is still the number one destination for people who want to be invested in Asia Pacific.” CBRE released an investor intentions survey at the two-day event that revealed a lingering appetite for Chinese real estate, despite some of the caution displayed on stage.