- Retail properties may consolidate as more shoppers go online
- GIC's Goh says getting `tougher' to generate returns globally
Home prices in Beijing and Shanghai, which have surged this year, have room to rise further as the inflow of residents bolsters demand in China’s biggest cities, said the head of real estate investments at Singapore’s sovereign wealth fund.
Despite some short-term volatility, the long-term outlook for the China’s real estate market is solid given its growth prospects, Goh Kok Huat, president of GIC Pte’s real estate unit, said in an interview on Wednesday with Bloomberg Television’s Haslinda Amin in Singapore. Retail properties face consolidation in China’s cities as more consumers turn to online shopping, he said.
“The rapid rate of urbanization creates demand for housing” in first-tier and major second-tier cities, Goh, 51, said. “If you look at Shanghai and Beijing, residential prices are still very, very robust; demand is still very, very robust.”
China’s government has embarked on a host of stimulus measures to boost property prices amid signs of an economic slowdown, helping to reverse a year-long decline in May. The price increases have been most evident in the four first-tier cities including the capital of Beijing and the financial hub of Shanghai, while smaller cities have shown lower growth or even continuing price declines. In its latest national plan, China affirmed a target of boosting its urban population to 60 percent by 2020.
As an investor in China, “you need to pick your spot,” Goh said. In particular, in the retail sector, GIC’s strategy is to go for “increasingly dominant centers.”
Singapore’s sovereign wealth fund, founded in 1981 and an early investor in private equity and property, is underinvested in real estate, Goh said on Wednesday. Low interest rates worldwide have made investing in the area “tougher and tougher,” he said. Returns from investing in real estate are likely to be low in such an environment, according to Goh, and prices are high in some top-tier cities global, such as London, Singapore and Hong Kong.
“It’s always hard to say whether we are in bubble territory, but they are certainly aggressive,” Goh said.
The state fund has about 7 percent of assets in real estate, while it can invest 9 percent to 13 percent, Goh said. GIC doesn’t disclose the size of its assets under management, though the London-based Sovereign Wealth Center puts its total holdings at $343 billion, making it the world’s sixth-biggest sovereign wealth fund.
Apart from China, GIC is evaluating investments in Japan, Indonesia, Brazil, India, Australia and New Zealand. Goh said Japanese real estate is attractive because of its strong tourism industry. India is a tough market but for investors who get in, there are “supernormal” profits to be made, he said. Australia and New Zealand will continue to be key markets given their liquidity and depth, while Europe will remain a tough market because of high prices and weak fundamentals, according to Goh. The U.S. market is recovering well and with its deep, transparent markets, it cannot be ignored, he said.
“We would like to put up more money across the globe, but it really depends on whether we see those transactions that are interesting,” Goh said at a conference on Wednesday. “We don’t have the compulsion to push money out through the door.”
Adding to Holdings
In China, GIC owns almost 5 percent of the Hong Kong-traded shares of China Vanke Co., the nation’s largest residential developer, according to data compiled by Bloomberg.
GIC has been adding to its real estate holdings, buying a building next to Tokyo Station last year in a bet on rising real estate values in the city. GIC also purchased Blackstone Group LP’s 50 percent stake in London’s Broadgate office complex in 2013 and was part of a group that acquired the headquarters space of Time Warner Inc. in New York City for $1.3 billion.
This year, GIC has invested in India, purchasing a 19.9 billion rupee ($300 million) stake in two housing projects in central Delhi from developer DLF Ltd. in a deal announced in September. One month later, GIC and Tishman Speyer said they would form a joint venture for Tishman Speyer’s Waverock office development project in Hyderabad.
Before joining GIC in 2009, Goh worked with real estate investment firm Tishman Speyer Properties LP in New York as managing director of equity capital markets and Singapore-based Ascendas Pte. Goh, a Singapore citizen, spent ten years in the country’s armed forces.