Chinese investors, ranging from large institutions to high net worth families are evolving the way they approach overseas real estate investment, delegates at the PERE Forum: China 2014 in Shanghai heard today.
On a panel focused on outbound capital, participants agreed that Chinese investors are more willing to look at secondary property markets as well as gateway cities, and to keep them for longer holding periods.
Chinese outbound capital into international real estate markets totalled $7.5 billion in 2013, twice the amount invested overseas in 2012, Michael Cole, founder of Chinese data service Mingtiandi, said.
Charles Ma, head of global strategy, Investments & Business Development at developer China Vanke predicted more outbound investment to come and with that increase will come different types of risk appetite for markets like Chicago, Wisconsin or Minneapolis.
William Tung, managing director at CINDAT Capital Management, a cross-border investment manager that has recently acquired property in Chicago, told delegates how coastal cities in the US in particular were becoming prohibitively expensive. He said: “When the two coasts are overheated people look for compelling values inland. We found a good partner to invest in Chicago.”
In response to a question from the floor, the panel said Chinese investors had evolved from having a desire for short-term holding periods, typically of two to three years, for their investments.
Ma said: “People have started to become educated by groups like us and Ping An. Now people are more ok with holds of five to seven years. What has surprised me is how quickly Chinese investors are learning and maturing. In the next six to 12 months, particularly if China continues to slow down, expect them to learn even more quickly and start to catch up with their more sophisticated international peers.”
Tung added: “In the beginning investors were adamant about a three year exit. This is a big learning process. Just like international capital coming to China, this is equally challenging culturally and business-practise-wise”
Chinese investors are also weary of upsetting host markets by investing only in clusters, both with partners and when it comes to picking locations. George Agethen, senior executive director at Ping An Trust, said Chinese investors are keen not to form ‘China towns’. He said: “We are the new kid on the block but we must be sure not to be seen as the fat cat in town.”
Ma extended the point by stating that for one recent US residential investment it was important for Vanke to partner with a US firm that could provide it with a local identity and also cap the amount of sales to Chinese buyers even though: “Vanke could sell out the whole building but we want to get the mix right.”
“It happened to the Japanese before, it happened to Hong Kong, in Canada. For us we try to control our mix. Our product must be as attractive to the local market as it is the international investor.”