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It’s failed and saddled with debt, but Li Zhang, a Chinese investment manager who came to Australia about 20 years ago, sees a lot of potential in shopping mall owner Centro Properties Group.
Zhang, his friends, relatives, and some companies in China as well as in Australia have pitched in as much as A$50 million ($39.7 million) to buy a 11.8 percent stake in Centro. As Centro continues to face refinancing issues, Zhang says his group is even trying to line up a Chinese bank to shoulder Centro’s debt.
“We think it’s a good investment target,” said Zhang, who worked for a technology company in China before earning a finance degree in Australia. “Chinese investors or Chinese financial institutions, they have the money.”
From individuals to institutions, Asian investors are setting their sights on Australia. China, in particular, has shown strong interest in Australia, as highlighted by state-owned metals firm Chinalco’s plan to invest in Australian miner Rio Tinto.
Although the Chinalco-Rio deal fell through, in the property sector, Chinese and other Asian investors are actively bidding.
“We closed bids on 1 Martin Place, a very prominent building down here (in Sydney), and a lot of the bids were out of Asia,” said Richard Butler, senior managing director for CB Richard Ellis International Investments.
Overseas investors accounted for 12 percent of total transactions in Australia in the first half of this year, up from around 9 percent in 2008, according to CBRE.
“What they are seeing is Australia probably is a safer bet, where returns will be more secure and safe because of the transparency,” Butler said. “Whereas no one wants to go into markets that are decimated like Singapore at the moment which is suffering from massive oversupply.”
From commercial to residential
Australia has weathered the global financial crisis relatively well, avoiding a recession so far.
Capital values for commercial properties in Sydney declined some 15 percent in the first quarter of 2009 from a year ago, compared with a more than 30 percent drop in Shanghai, Hong Kong, Tokyo and Mumbai, according to Jones Lang LaSalle.
Rents fell around 25 percent in Sydney while Singapore, Tokyo and Mumbai saw more than 30 percent drop in the first quarter, said JLL.
Australia has already seen some big names tapping the market.
South Korea’s Woori Investment & Securities Co is in the process of buying two buildings in Australia for about A$600 million. Japanese home builder Sekisui House in May concluded a A$190 million joint venture with Australian firm Payce Consolidated to develop homes in Sydney and Brisbane.
On a residential level, Australia relaxed its policies late last year, allowing temporary residents to buy houses without notifying their acquisitions to a government body, giving a boost to the home sector.
“There is a fair bit of movement, with wealthy Chinese having their children study in Australia,” said John Bongiorno, director for real estate agent Marshall White based in Victoria.
The company is considering opening an office in Shanghai or Beijing to attract more buyers. “They are attracted by the safety of the country, by the high standard of education we offer, by the high standard of living we offer,” he said.
Money and opportunity
Asian investors were dominant buyers of Australian properties in late 1990s when the market went through a downturn partly due to oversupply. Those investors from the Asian Tiger economies later became net sellers as the market recovered and property yields compressed more than 100 basis points, pocketing hefty returns.
Now, analysts said the timing may be good for foreign investors to enter the market, with many local players inactive due to tight credit, and pension funds, which have overweighted property, remaining sidelined.
David Green-Morgan, Asia Pacific research director for DTZ, expects transactions to pick up as foreign investors are likely to rush and get the best deals.
“Some of the buildings on the market at the moment in Australia are those that haven’t been trading for 10 to 15 years,” he said. “People don’t want to miss out.”
In Sydney, some A$750 million of property assets are currently up for grabs, including the Australian Stock Exchange building in the central business district.
Some experts said Asian investors are looking for long-term investments to get steady cash flow, but Morgan said some may only be looking for a relatively short-term investment.
“They are trying to play the same game again. They are coming in at this point of the cycle as they see opportunities,” he said. “They will be happy to hold for five to eight years and then they’ll get out when the market gets back up.”