Date
17 December 2017
An artist rendering of the Greenland Centre
An artist rendering of the Greenland Centre

Chinese developers expand abroad and drive wealth migration

On the South Korean island of Jeju, Greenland Group is investing US$984 million in a mixed-use property project, mainly aimed at wealthy Chinese investors wanting to buy a holiday home and residency rights.

The 218-meter-high Jeju Dream Tower will comprise 1,000 luxury serviced apartments, an upmarket hotel, duty-free shops and entertainment facilities. It is due for completion in 2016.

Greenland, a Shanghai city government-owned property developer, is one of several major Chinese builders expanding into countries favored by wealthy mainlanders for investment, emigration and education for their children. This expansion both serves and encourages the migration.

China is in the midst of the greatest transfer of assets abroad in its history — the result of the creation of unprecedented personal wealth coupled with fears of confiscation and social instability. A study published last year by Boston Consulting and China Construction Bank estimated that the rich had moved a cumulative amount of 2.8 trillion yuan (US$452.41 billion) offshore, equivalent to 4.92 percent of China’s gross domestic product in 2013.

Their favored destinations are the United States, Canada, Australia, New Zealand, Hong Kong and Singapore.

The developers are following the migrants, by building homes in these countries; they are also fueling the migration, because Chinese feel more comfortable buying from companies they know and have used at home.

In March 2013, Vanke Group announced its first investment in the North American market – two high-rise luxury residential condominium towers on Folsom Street in San Francisco, which has 655 units. Of the total investment of US$620 billion, Vanke will provide US$175 million and its partner Tishman Speyer US$75 million, with the rest coming from debt financing. Vanke holds 70 percent of the joint venture.

While Chinese will not be the exclusive target for the towers, San Francisco is one of the US cities they favor for investment.

In Sydney, Greenland is building the Greenland Centre, including a high-end boutique hotel and residential tower, in the Central Building District, with an investment of A$600 million (US$544.45 million). It will have 480 residential units, with an average price of A$1.35 million.

Chairman Zhang Yuliang said the group will launch new property projects in Australia over the next 12 months. “For our company, the first choice for our overseas expansion are the destinations for China emigrants, tourists and students,” he said.

For this year, it has set an overseas sales target of 20 billion yuan, up from 3 billion yuan in 2013, and reaching 30 billion yuan in 2015.

In Malaysia, Country Garden Holdings Co. Ltd. (02007.HK) spent 800 million ringgit (US$244.31 million) last year to buy a 28-hectare site in Danga Bay, Johor Bahru, for a property project with a gross development value of nearly 18 billion ringgit. It comprises 9,000 units of luxury condominiums and bungalows and a shopping center.

The developers have good reasons to choose these countries; they are the ones favored by wealthy Chinese for tourism, study, investment and emigration.

Jeju island, for example, offers residency rights to foreigners who spend at least US$500,000 on a property there; if they remain for five years, they can acquire permanent residency. Even if they do not move there, it is a popular tourist destination for Chinese, who regard it as a good investment.

Malaysia also has an attractive offer. A foreigner who invests at least 600,000 ringgit can obtain residency permits for himself and his family, without giving up his original nationality; there is no age restriction nor requirement to speak English.

Holiday properties in Malaysia are cheaper than those in southern China’s Hainan province and only a few hours away from major cities in China.

The overseas expansion is a wise strategy for the developers, enabling them to diversify their risk in terms of location and currency. Their clients at home are not familiar with foreign developers and are likely to go for firms that they recognize.

All the signs point to strong demand, among Chinese and other nationalities.

A recent report from Knight Frank and Bank of China International Ltd. said that almost 25 percent of Asia’s richest individuals — with assets of more than US$30 million, excluding their primary residence — are considering the purchase of another home in the next 12 months. Chinese show the highest interest, at 31 per cent, against a global average of 22 percent.

Knight Frank said that, in 2013, more than 76 percent of inbound capital into Britain, the US and Australia originated from China, Singapore, Malaysia and India.

Chinese property developers have good days ahead of them.

– Contact us at [email protected]

CG

 

Hong Kong-based journalist and author. He had worked as a correspondent for the South China Morning Post in Beijing and Shanghai.

EJI Weekly Newsletter

Please click here to unsubscribe