China Funds, Builders Seek Australia, Vietnam Property Assets

Chinese companies and funds are seeking real estate investments in Australia and Vietnam to diversify as China steps up efforts to cool its property market.

Sovereign wealth funds have expressed interest in investing in Australia’s real estate, said Colonial First State Global Asset Management, which manages A$149 billion ($138 billion) globally. Chinese builders have been on fact-finding missions in Vietnam to explore opportunities, said VinaCapital Group, the Southeast Asian country’s biggest fund manager.

“We’ve certainly seen large Chinese institutions looking to get into the Australian property assets,” Darren Steinberg, head of property at Colonial, said in an interview yesterday. “They are looking to diversify their investment portfolio and Australia will form part of that.” He declined to name the Chinese companies that have approached Colonial as a potential joint-venture partner.

China Investment Corp., the nation’s $300 billion sovereign fund, earned more than $10 billion on overseas investments in 2009, Executive Vice President Jesse Wang said in March. A Beijing-based spokesperson with CIC said the fund doesn’t comment on specific investments when contacted today.

Vietnam’s property may benefit as Chinese state-owned companies look abroad as they exit real estate holdings in their home country, said Don Lam, chief executive officer and founding partner of VinaCapital. Seventy-eight Chinese state-owned companies filed plans to exit the nation’s real estate sector after a government order, Xinhua News reported April 9.

Curbing Speculation

Residential and commercial property prices in China jumped a record 11.7 percent in March, prompting the government to announce measures to curb speculation. On April 20 it ordered developers to stop taking deposits for sales of uncompleted flats without proper approval. This adds to curbs on loans for third-home purchases, increased down-payment requirements and higher mortgage rates announced in the past week.

China, the world’s third-biggest economy, is Australia’s largest trading partner, importing iron ore and other metals from the antipodean country. Chinese investment in Australian farms increased 10-fold in the past six months, according to real estate agents.

Foreign investors, including Chinese, are drawn to Australia because of its strong economy, Steinberg said. The nation’s economic growth will expand 3 percent this year and 3.5 percent in 2011, the International Monetary Fund said this week, lifting a January forecast. The central bank was the first among the Group of 20 to raise borrowing costs this year.

Vacancies Peak

Colonial is positive on the outlook for Australia’s office sector as vacancies may peak at Christmas, Steinberg said in Singapore at the Asian Public Real Estate Association Forum. The firm is receiving “significant” enquiries about the availability of its office space. “We are confident that the leasing market is improving.”

Office vacancies in Sydney and Melbourne are expected to peak in 2011, according to Colliers International.

Chinese developers and construction companies have approached VinaCapital about investing in Vietnam’s real estate sector, Lam said in an April 21 interview at the same forum.

“They are at an exploratory, fact-finding stage; they felt that the valuation in China is a bit high and they are looking at other opportunities,” Lam said. “Whether this pans out to be real investment, I don’t know as the process typically takes about 12 to 18 months.”

VinaCapital, which manages about $2 billion, is Vietnam’s biggest fund manager. Its real estate unit also provides advisory, development and management services for the property investments in VinaCapital funds, according to its Web site.

Vietnam Residential

Vietnam’s residential property prices have risen 10 percent in the past 12 months, Lam said. The advance has been stemmed by interest rates, which are at 14 percent to curb inflation, he said. Hong Kong home prices have jumped 29 percent in the year to April 11, according to an index developed by Centaline Property Agency Ltd. and the City University of Hong Kong.

Property prices “will only recover much stronger when the interest rate drops to below 12 percent,” Lam said.

Lam said he favors the mid-level residential market, where homes with an area between 68 square meters (732 square feet) and 80 square meters cost about $100,000 each and where prices may rise by as much as 15 percent by year-end. He also likes shopping malls, which are underpinned by demand as Vietnamese shift to these centers from wet markets, said Lam.

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