The Chinese property market isn’t as much fun as it used to be. Beijing is trying to slowly vent an investment bubble in real estate through a variety of policy measures, and as a result price growth has at long last begun to slow or even reverse in many urban markets. The result is pushing Chinese property investment outward.
Mainland investment has been pushing up Hong Kong property prices for years, of course. But now it’s moving West.”Many distressed markets are bargain-priced compared to the high price of property in major cities in China,” noted Jack Rodman, president of Global Distressed Asset Solutions.
Some Chinese companies may prefer real estate because it’s less intimidating to manage. Running a foreign subsidiary can be complicated, but property is a bit more familiar.
For example, the Wanxiang Group, China’s second-largest privately held company, makes automobile parts and dabbles in property on the side. Last year it created a commerical property subsidiary in the US, and promptly engaged in a US$47 million office renovation in Illinois with an American joint venture partner.
Hotels projects are more complicated, but are also areas of growth. In 2010, Jin Jiang Hotels and Thayer Lodging Group, in a 50/50 joint venture, acquired Interstate Hotels & Resorts for $307 million, the largest overseas acquisition ever completed by China’s hotel industry.
“If I had to give an example of a great real estate deal, this is it,” said Malcolm Riddell, CEO of boutique investment bank RiddellTseng, who recently conducted a study on the subject of Chinese real estate investment in foreign markets. He pointed out that the acquisition came with a lot of perks, including a training facility in the US for Jin Jiang employees, the creation of a joint fund for future investment, and increased access to China for Thayer.
Other high-profile deals include the Fosun Group’s purchase of 7.1% of resort operator Club Med for US$28.14 million, which included the license for Fosun to operate the Club Med brand in China, and the US$3.4 billion Baha Mar project in the Bahamas, financed by a loan from the China Export-Import Bank.
“There were some great real estate deals,” said Trevor McCormick, CEO of Foster Partners. “There should have been more of them.”