ASIA NEWS: Hands on China

Guy Hands, the well-known European private equity investor, has China on his mind. Indeed, his London- and Guernsey-based firm, Terra Firma, recently opened an office in Beijing as its entrée to the country.

In his first interview since opening the office, Hands said he sees substantial opportunities in China over the long term and wants to add value to Terra Firma’s investments in the country by having locals on the ground.

Significantly for readers of PERE, he noted that social housing in China was of particular interest to his firm.
“Terra Firma has a very successful track record of creating value by transforming businesses that are rich in assets and that are in what we call ‘essential industries’. These are industries like agriculture, energy, real estate, transport and logistics,” Hands said. “These industries are of particular importance in China, therefore we have a collection of portfolio businesses that we think could benefit from opportunities in China and with Chinese partners.”

Terra Firma already is the owner of the largest residential property company in Germany. Hands began by acquiring Deutsche Annington Immobilien Group for €2.25 billion in 2000, while he was still working at Japanese bank Nomura. The company has 230,000 leased and managed units nationwide and grew to become the largest in Germany via the acquisition of another residential property company, Viterra, in 2005.

Given its experience of investing in affordable housing in Europe, Terra Firma has seen a “wide variety of management models” that offer different benefits, depending on the need of a particular region. “I think that in all countries that go through a period of urbanisation, one of the major issues they face is how to provide quality urban housing that is affordable to people who are moving in from less affluent regions,” Hands said. “Some models are geared towards tenants; others are more suited to people that want to buy housing. Before we consider investing in affordable housing in China, though, we will be watching to see how the market develops. To date, the market is one based on purchase, not a market based on tenants.”

Asked what the biggest challenge would be to achieving success in Chinese social housing, Hands answered town planning. “Providing integrated housing, where you have sufficient areas of communal space and public amenities to enable a community to develop, is key,” he said. “Without developing a community, the value of the development is always at risk. So it’s about looking at how things develop over the next five to 10, 15 or even 20 years. It is very easy to put up blocks of houses or blocks of apartments, but it is much more difficult to say how those apartments are going to be working in 15 or 20 years’ time. Developing a community as opposed to just simply building houses is what is important in the long term.”