China's leading real estate companies are looking for their next big challenges

Major Chinese property developers are speeding up their pace of investments in overseas real estate projects.

In the first two months of this year, more than five leading developers, including Vanke Co and Greenland Holding Group, announced foreign investment plans totaling more than 50 billion yuan ($8.17 billion, 5.9 billion euros).

This trend will continue and even strengthen throughout the rest of this year, even though Chinese developers expanding overseas is still at an early stage, analysts say.

The going-out era for Chinese developers started last year. According to research by Jones Lang LaSalle Inc, a Chicago-based real estate service and investment company, the investments of Chinese developers in foreign commercial real estate increased 124 percent last year over the previous year.

This year, the pace has increased. Vanke Co, China's largest property developer by revenue, announced on Feb 26 that it will work with US developers RFR Holdings and Hines on a residential building in New York. This will be the Shenzhen-based developer's second investment in the United States after it worked with Tishman Speyer on a project in San Francisco.

On the same day, Hong Kong-listed Country Garden Holdings Co Ltd announced it planned to invest $66 million in the Australian residential market. These announcements were followed two days later by Chinese state-owned developer Greenland Holding Group announcing an investment of nearly 20 billion yuan in Malaysia after it paid $2 billion for the Ram Brewery site in southwest London in January.

The developers exploring the overseas market are the country's leading real estate companies and their domestic competitiveness is above average, according to the Top 500 Real Estate Developers in China 2014 Report, issued by the China Real Estate Association. Among the more than 60,000 real estate companies in China, there are seven developers whose annual revenue was more than 100 billion yuan last year and it is these companies that are leading the trend of overseas forays.

"The reason that these large property developers are exploring overseas markets is because they have basically completed their business layout nationwide, and it is time for them to adopt an internationalization strategy to develop both the domestic and global markets," says Zhu Zhongyi, vice-president of the association.

Zhang Yuliang, chairman and president of Greenland Group, agrees with this view. "Greenland has investments in almost all the Chinese cities, so globalization is a necessary choice for big companies like us," he says.

Zhu says: "The relatively low land prices in overseas real estate markets (due to continuing recession in developed countries) provide Chinese developers a good opportunity to invest in overseas projects, especially as the low interest rates at present reducing their financing costs."

However, the specific objectives for going out differ from one developer to another. For example, Greenland, which now has more overseas projects than other Chinese developers, is determined to join the competition in the international market.

"As more Chinese companies, students and visitors go overseas, we also need to promote our overseas development," Zhang says.

Greenland's projects in South Korea and Malaysia are all aimed at Chinese looking for a second residence or investment outside China.

To meet the rising needs of the Chinese going aboard is regarded as an important strategy for the developer.

Vanke is also looking to provide a purchasing channel for Chinese investors buying properties overseas, and its current overseas investments are giving it more experience.

"Although Vanke's long-term strategy is internationalization, at present, we hope to gain a better understanding of overseas markets and business models," says Yu Liang, president of Vanke. "It is also a significant way to learn from our overseas peers who have rich experience."

Yu also says that going out can introduce a greater variety of successful models into the domestic market.

Ding Zuyu, executive president of E-House (China) Holdings Ltd, says: "It's unlikely that going abroad will become mainstream for Chinese developers. The trend is still in the testing stage even if those leading developers are looking to supplement their activities in the domestic market or gain overseas experience."

Ding also denies that high land prices in China are one of the main reasons that developers are considering more overseas investments.

"The predication is that the national trading volume will start to fall this year as it reached a peak of 1.3 billion square meters last year. But there are still opportunities in first- and second-tier cities, especially for the leading developers, so the overseas situation will not change those developers' general strategies in the domestic market," Ding says.

This view is supported by data. According to the Top 500 real estate developers report, the investment amount in domestic real estate and the amount of sales of commercial housing nationwide reached record levels last year. Also, the domestic land market has recovered since June, with the annual land purchase area increasing by 8.8 percent from the previous year, and many developers bought more land for future projects in first and second-tier cities in the second half of last year.

Analysts also warn that developers are still in the exploration stage overseas, and there are many challenges ahead. Ba Shusong, a researcher with the State Council's development research center, has pointed out that the overseas investments of Chinese developers have the typical characteristics of new money, being short-term projects with low patience.

Mature markets in countries such as the US and the United Kingdom are the preferred destinations for China's developers.

"Although the government encourages developers to go out to emerging and less-developed markets, few companies are active in these markets yet, and it is better if they can work with those infrastructure and construction corporations who have experience in those economies," Zhu says.

However, some companies are dipping their toes into emerging economies. Poly Real Estate Group, one of China's top 10 developers, has made Africa its first overseas investment destination, the chairman, Song Guangju, said last year.

But whether they are investing in developed or emerging economies, they are taking the first steps of the journey overseas, and the trend will gain momentum in the coming years.

As Wang Jianlin, chairman of China's Wanda Group, said recently, the company has a target of one-third of its annual revenue, about $30 billion, should come from overseas markets by 2020.

Chinese investments are being welcomed in many overseas markets. When Vanke announced it would attend Expo Milano 2015, Alberto Bradanini, Italy's ambassador to China, said his country is expecting more investment from Chinese developers.

"I'm looking forward to companies like Vanke coming to Italy, not only with their ideas and designs to highlight our expo, but also with their capital in real estate," he says.

Vanke will build an independent pavilion called the Dining Hall at the Milan expo as part of the Chinese pavilion. Yu says the dining hall theme will present a view of real city life led by ordinary residents in China.

"Participation in Expo Milano 2015 is part of our plan to go global, and it will help us promote brand awareness of Chinese real estate developers among Europeans," Yu says.

Contact the writers through xiaoxiangyi@chinadaily.com.cn

Yu Liang, president of Vanke Co, with Alberto Bradanini, Italy's ambassador to China, on March 4. Vanke will attend Expo Milano 2015 and the ambassador said his country expects more investment from Chinese developers. Photos Provided to China Daily

(China Daily European Weekly 03/14/2014 page22)