This property newsletter explores Chinese critical mass of investment as a catalyst for change, the danger of the holiday home syndrome for Sydney, and summarises more than 20 Chinese-linked property articles.
2nd Aus-China Property Developers Conference, June 8, Sydney – please visit www.basispoint.com.au/property-conf-2016 for details and to register
Critical mass in Sydney’s Circular Quay
Sydney’s Circular is being transformed with three of the five major development projects being Chinese (or Asian) backed.
Wanda has a $1 billion luxury 57 storey tower with a hotel and 184 apartments currently underway with the penthouse rumoured to be priced at $100m (making it Australia’s most expensive residential dwelling and/or a great media-generating topic)
China’s Macrolink Group, in partnership with Melbourne based developer Landream, is buying the former Coca-Cola Amatil property for $158.5 million with plans for a luxury apartment tower.
Singapore’s Pontiac Land Group (owned by the Kwee brothers, two of the city’s richest people) will pay $35 m for a 99 year lease to develop the heritage listed Lands and Education Department as a luxury hotel. The property is on Bridge St, on the fringe of the Quay precinct, and will likely attract a 5 or 6 star hotel operator.
The 4th and 5th major projects are AMP’s plans for a $1 billion ‘Quay Quarter’; and Lendlease’s proposal to develop one of the tallest office towers in Australia after amalgamating the site over several years.
These catalysts, and the potential removal/redesign of the Cahill expressway, will lead to a rejuvenation, and revaluation of the area. In addition, the Barangaroo and Darling Quarter developments will also add to the critical mass of change in Sydney’s CDB that will enhance its attractiveness as a global city.
But in danger of the holiday house syndrome
However, as Sydney becomes a playground for the international jet-set, the ‘glamorous’ parts of the city could suffer from the ‘holiday house’ syndrome. As an example, consider the waterfront mansions in Sussex Inlet, 3-hours drive south of Sydney with its aquatic playground, fishing, (including abalone) and wild kangaroos. In summer, this holiday town bustles with 20,000 holiday makers, but in winter, it hibernates with just 3000 residents ….and many empty luxury holiday homes.
Chinese ‘critical mass’ investment in South East Queensland
Chinese investment in SEQ has reached a ‘critical mass’. Projects include:
- Wanda Group’s $900 million ‘Jewel’ luxury resi and hotel complex, its deal with Jetstar to operate two flights between the Gold Coast and Wuhan (launched in September 2015) and reported discussions with the Qld government to build a theme park on the Gold Coast.
- Chow Tai Fook and Far East Consortium (both HK based) with Australia’s Star Entertainment will jointly develop the $3 billion Queens Wharf integrated casino, hotel and residential complex in Brisbane.
The same 3 partners are in talks to double the number of hotel rooms at Star’s Jupiters casino on the Gold Coast with a new $505m high-rise tower
- Hungtat Worldwide, a company associated with Macau gaming tycoon Stanley Ho is seeking to develop a $120 million, 325 unit luxury residential project at the Palm Meadows golf course on the Gold Coast. The land was been owned by Ho for 20 years according to the Gold Coast Bulletin.
- More to be revealed in our Aus-China Property Developers conference June 8 Sydney
These Chinese developments will create a cumulative marketing and tourism ‘buzz’ for the region. It will more quickly become a bigger destination for Chinese tourists, as firms such as Wanda actively market their Qld projects in China.
See article below –Tourism asset boom. Also our newsletter next week will discuss Wanda’s massive reach into Chinese and international audiences via films and sport, that was amassed within a year)
Rival theme parks (owned by ASX listed Ardent Leisure and Village Roadshow) may lose revenue if Wanda eventually builds its own theme park… (or it could be Wanda’s negotiating tactic to pressure Ardent or Village into selling their Qld theme parks by ‘planning’ to build a competing park)
In the longer term, a ‘critical mass’ of world-class theme parks will increase the region’s attractiveness as a ‘go-to destination’, much like Las Vegas and Macau has become the premier destinations for casinos.
Aus-Chinese property development news
27 residential properties have been identified as having been illegally purchased by foreign investors following an investigation by the Australian Tax Office of 700 suspected deals. The investigation was announced with much media fanfare by the former Treasurer Joe Hockey a year ago.
Another 800 cases are still under ATO investigation, and the government has not advised if there will be more cases to come. Based on the 27/700 statistic, another 32 illegal deals are likely be uncovered once the remaining 800 properties are investigated.
Not all illegal deals were Chinese based. We estimate there will be 40 in total. (The latest batch of 8 illegal deals were by residents of Malaysia, Taiwan, Canada, India, China and the US).
In comparison, there were around 25,000 FIRB approvals for residential purchases by Chinese investors in the 3 years to June 2014. For a quirky perspective, the 40/25,000 foreign Chinese investor deals is similar to Australia’s incarceration rate of approx. 38 prisoners per 25,000 population.
*
Australian construction conglomerate John Holland is set to diversify into residential development and hotel investments with a $1.1 billion budget, (AFR, 28 Jan. 2016).
John Holland was bought last year by Hong Kong listed CCCI, a unit of the of the $32 billion China Communications Construction Company.
Tom Roche, the firm’s Executive GM in development and investments, will head the new business unit which will include property development, infrastructure public-private partnerships, and merger and acquisition opportunities.
*
$28.4 billion of commercial property (office, industrial and retail) was transacted in 2015, a 4 per cent drop from the $29.6b record set in 2014, according to CBRE. Domestic investment fell by 26 per cent but offshore investors accounted for $11.7bn, a 64 per cent increase. (Therefore expect FIRB numbers for 2014/2015 to show strong growth. The FIRB report will be released shortly)
*
Mirvac has formed a joint venture with Ping An Real Estate, (a subsidiary of one of China’s largest insurers) to develop residential projects in Australian cities. Its first project is The Finery, a 226 unit and retail complex in Sydney’s inner-city Waterloo, that Mirvac is developing.
Mirvac has also reached agreement with China Investment Corporation (CIC – a Chinese sovereign wealth fund) to become the asset manager for CIC’s recently acquired Investa Property Trust.
*
The Huashang Education Group is establishing a college in Melbourne (The Australian 30 Nov 2015). The group has invested $12m to acquire and refurbish two buildings on La Trobe Street in Melbourne, one as the college and another as student accommodation.
Huashang is part of a family-controlled Chinese conglomerate and provides services for 35,000 students, including operating a business-focused private college within a public university, the Guangdong University of Finance and Economics.
The Australian college has all instruction in English and will enroll Australian and international students including those from China. There are more than 200,000 students from China, according to Chinese government estimates.
*
A group of high-net-worth Chinese investors from the Australia China Entrepreneurs Club have bought the country estate and grazing property Linton Park in Wyong shire on Sydney’s central coast for $2.15 million (AFR, 7 Dec 2015). The group plans to use the two homes with equestrian facilities as a hobby farm.
*
McGrath’s $282m Dec 2015 IPO factored in zero housing price growth in 2016 in its financial modelling. John McGrath, who holds around 27 per cent of the listed firm, told the Australian (30 Nov 2015) ‘We don’t think the China story, or Asian demand for Australian property, is anywhere near its end; we think it’s at the beginning,” he said. Around 70 McGrath agents earn more than $1m in gross commissions a year, he added.
*
Sydney based mortgage broker N1 Holdings, which caters to Chinese and Asian borrowers residing in Australia and overseas, has listed on the ASX.
The firm will be capitalized at $16m on listing. Founded in 2011, the company has 43 employees. N1 lodged more than $1.1 billion in loan applications and has settled more than $880 million in mortgages from FY13 to Sept 2015. It draws business from its platform of referrers including real estate agents, accountants, lawyers, and immigration agents, as well as existing customers.
*
Billionaire property developer Lang Walker will sell his $2.5 billion Collins Square project in Melbourne in what could be the largest single property sale in Australia (AFR, 26 Nov 2015).
Mr Walker has a reputation for selling just ahead of the peak of the market, but told the AFR “I don’t think it is at the top,” he said. (Well, you would expect him to say that)
“Look at the yields and the 10-year bond rates. There is still a big gap and interest rates are going to stay lower for longer and there is a lot of overseas capital looking for projects in the gateway cities.”
*
Nearly half (23 out of 50) China-listed property developers reported profit decline in 2015, (China Daily 27 Jan. 2016).
Among them, 13 property firms reported an annual loss for the first time, said the newspaper citing data from RoyalFlush Information
Analysts expected a modest pickup in property sales in 2015, in part helped by interest rate cuts and the lifting of home purchase restriction.
*
A Chinese mining company has paid $43.7 million for two prime residential hectares in Kellyville, one of the biggest sales in the suburb, (The Daily Telegraph 26 Jan. 2016).
*
China had 452.5 million square metres of unsold new homes as at the end of 2015, up 11.2% over the year, (South China Morning Post 19 Jan. 2016 citing China’s National Bureau of Statistics data).
Assuming the average home/apartment in China is 80 square meters, this suggests 5.6 million dwellings are unsold.
The SCMP also reported that:
- The value of home sales in China rose 16.6 per cent in 2015 to 7.28 trillion yuan.
- Investment growth in China’s housing sector fell 0.4 per cent to 6.5 trillion yuan (A$1.3 trillion).
- Excess supply is reportedly concentrated mostly in smaller cities
China’s central bank has lowered interest rates six times since November 2014, pushing mortgage financing cost to historically low levels in an effort to aid affordability.
*
The average rent for a residential apartment rose 20 percent in 2015 in Shanghai (Metro Shanghai, 18 Jan. 2016). A three-bedroom apartment near the Outer Ring Road now fetches 16,000 yuan (A$3,200) per month
*
Huang Qiaoron, the co-owner of China’s Yonghui supermarket chain has bought a $36 m Vaucluse home, (Sydney Morning Herald 16 Jan. 2016). Ms Huang is a permanent resident based in Canberra. Her husband, Zhang Xuansong is on the Forbes list of Chinese rich with a $1.35 b fortune.
The home is currently tenanted by Richard Liu Qiangdong, the founder of online marketplace JD.com who is expected to be the likely eventual buyer of the property, according to SMH citing ‘industry insiders’.
Another Vaucluse residence, Villa Igiea, was sold for $52 million on New Year’s Eve to 27-year-old property developer Shangjin Lin. His family owns the Shenglong property group (Shanghai), which established Aqualand as its Australian subsidiary (News.com.au Jan 8 2016)
*
Housing prices in Beijing rose from an average of 7,300 yuan ($1,122) per square meter to 35,000 yuan ($5,380) over the past decade, while prices in Shanghai rose from an average of 7,000 yuan per square meter to 39,000 yuan.
During the same period, China’s benchmark Shanghai Composite Index increased from 1,160 to around 2,900, and the yearly per capita expenditure of Chinese residents rose from 6,400 yuan to 17,800 yuan, an increase of less than three times, according to the survey conducted by China Central Television along with National Bureau of Statistics and China Post Group Corporation.
*
YT International has bought two buildings at Perth’s Forrest Centre for a price believed to be about $220m, according to The Australian ( 24 Feb. 2016).
*
Country Garden vice-president and chief strategy officer, Lin Zhaoxian, is seeking corporate opportunities or joint venture partnerships to expand in Australia (The Australian, 24 Jan. 2016).
Mr Lin noted the Australian apartment market had slowed but told the Australian “We are very optimistic about the outlook of Australia and New Zealand and the real estate industry will have some fluctuation but as a long-term investor we are very optimistic.”
*
Singapore-based investment vehicle 8I Holdings aims to spin off its southeast Queensland property development business named Velcocity Group on the ASX. The company, which itself listed in Australia in late 2014, will also pursue an offshore listing for its educational seminars business 8EDU, according to The Australian (22 Jan. 2016).
It originally began as a financial education and training seminar business, activities that remain a large part of the operating business.
Get set for the Chinese tourism (and Australian hotel) boom
Chinese visitors to Australia:
- Reached 1 million in the 12 months ended November 30, up 21% from a year before
- Is more than double from five years ago
- Spent $7.7 billion in a year, well above industry forecasts of $7.4 billion to $9 billion per year by 2020.
- Represents less than 1% of all Chinese trips abroad. For example Thailand receives 8 million Chinese visitors per year -1/3 of its tourist inflows. Nearly half of all Chinese trips are to HK and Macau (according to securities broker CLSA)
- Chinese arrivals into Australia in January 2016 rose 55 per cent to 114,300 (ABS data)
- An Aus-China air-services deal from January 2015 has tripled potential seat capacity to 67,000 seats a week. (The Australian, 29 Jan. 2016). ie 3.5 million Chinese tourists at peak capacity
- Carnival Corporation, the world’s biggest cruise line company will home port six ships in China in 2016 (AFR, 26 Nov 2015). Many of those ships will look to sail to Australia for the southern hemisphere cruising season from September to April. In October 2015, Carnival signed a $US4 billion joint venture with local Chinese companies to create China’s first domestic cruise brand.
- 120 million Chinese people traveled overseas in 2015 (China National Administration of Tourism).
- 200 million mainland Chinese leisure travelers are expected to travel worldwide by 2020, (CLSA).
Source: Ctrip (France received more than 2 million visitors from China, according to China Daily, but is not on the Ctrip list above )
Sydney and Melbourne will face a shortage of hotel rooms despite several major projects finishing over the next three years. 64 properties are due to open before the end of 2018 across nine major hotel markets. (Deloitte’s Tourism and Hotel Market Outlook)
Sydney has an occupancy rate of 88.5 per cent, the highest in Australia. Room rates grew at 8.8 per cent (annualised) for the second half of the year
*
“We are seeing an emergence of Asian developers addressing the under-supply of hotel rooms within the Sydney CBD. There is still a long way to go with Sydney’s current supply of approximately 18,000 hotel rooms,” (Colliers International’s hotels Raymond Tran speaking to the AFR 10 Nov. 2015
As a comparison, Hong Kong and Singapore have 73,000 and 67,000 rooms respectively. Melbourne has 19,000 rooms with 6,000 more in the development pipeline, noted Tran.
*
Chinese and Asian groups have been responsible for the majority of golfing property transactions in the past two years (The Australian, 5 Dec 2015). $400 m has been spent on various golfing assets.
Chinese golf tourists make up 9 per cent of total golf visitor nights in Australia, second only to the US and Britain, and have grown 73 per cent in the past five years, noted The Australian. Chinese golfers are also big spenders, averaging $13,568 per stay.
*
88 per cent of the Sydney CBD’s four and five-star hotel stock is owned by offshore investors, up from 69 per cent in early 2010, according to Knight Frank research.
Singapore accounts for 29 per cent of 4 & 5 star rooms, while ownership by Chinese and Hong Kong investors has reached 18.4 per cent from “effectively zero” five years earlier.
*
Listed Singaporean hotelier and developer Banyan Tree plans to introduce its 4 star Cassia-branded hotel and serviced apartment complexes to Australia’s east coast hotel sector preferably in Sydney. (The Australian 02 March 2016). Banyan Tree last year announced plans to also build a luxury $150 million 76 apartment development in Kangaroo Point, Brisbane.
*
The Sheraton Mirage Port Douglas and 2800 hectares of land at Laguna Whitsundays, including the airport, are to be transferred from Nanjing-based tycoon Ji Changqun’s private holdings into his Hong Kong-listed Fullshare Group investment vehicle, and will boost re-development of the properties. (The Australian 28 Jan. 2016).
*
China’s Nanshan Group is reportedly buying the Pullman Sydney Airport hotel for $84 m, (AFR 8 Dec. 2015). The hotel will open in June 2016.
Nanshan is a Shandong-based industrial conglomerate co-founded by Zuowen Song, China’s 76th-richest person worth $2.8 billion, according to Forbes. Its Australian real estate interests include the Riverside Oaks golf course in Sydney’s north-west and agricultural holdings.
OTHER CHINESE DEVELOPMENT NEWS
New residential property investor and developer Land & Homes Group Limited has entered the Brisbane market. The firm recently listed on the ASX and is backed by Singapore property group Lian Huat Group.
This is the second Lian Huat Group-backed ASX listing. Its first, LionHub Group, is building technology parks in China. Lian Huat Group owns the retail complex at One Dixon in Sydney’s Chinatown, (AFR 28 Jan. 2016)
*
Home prices in Beijing, Shanghai and Shenzhen have surged by 20 to 30 percent since the Lunar New Year, according to China Daily (March 16). The supply-demand imbalance and changes to home purchase policy restrictions, speculative buying, irregular sales practices and illiquid markets may be factors.
Shanghai’s prime home prices recorded a 14 percent growth year-on-year in 2015. It came third among global cities, after Vancouver (24.5 percent) and Sydney (14.8 percent), noted the Wealth Report 2016, published by Knight Frank and Bank of China International Limited.
*
Sydney’s new Australian-Chinese elite continue to make waves in the high end property market. 24-year-old Jack Lin has bought an $8 million Point Piper apartment, (Domain March 24). His father Victor Lin was recently appointed chair of the Terrey Hills Golf and Country Club, and counts property developer Phillip Lee, who bought the Mandalay trophy home last year for $39.9 million, within his circle, noted Domain.
For example, supermodel Kristy Hinze-Clark and her billionaire husband Jim Clark are mostly based in the United States, but kept their $8 million Point Piper home as a base for friends and staff on their regular returns to Sydney at Christmas, according to Domain (March 24).
*
Casino proposals in Hong Kong billionaire Tony Fung $8 billion Aquis resort in Cairns have been dumped (SMH 1 April). The move paves the way for other gambling operators to submit proposals to the Queensland government for a new casino development.
Aquis still plans to build a hotel and entertainment resort. SMH reports market speculation that Mr Fung may favour a casino on the Gold Coast rather than in Cairns. He recently joined with Chinese developer Tandellen and CCCC International Holding (owner of John Holland) to buy a development site at Surfers Paradise for $40 million.
Last August the Qld government struck an agreement with ASX listed Chinese backed ASF Group for a new site for the potential $2 billion integrated resort and casino on the Gold Coast Broadwater. The five-hectare site is next to Sea World and the luxury hotel Palazzo Versace.
*
Greenland Australia has unveiled plans to build 900 apartments in six towers on the 1.53-hectare site acquired last year at Lachlan’s Line in Macquarie Park (AFR March 31)
Greenland’s development is part of the larger, and master-planned, Lachlan’s Line site which can hold 2700 apartments in total. Greenland’s Australia head Sherwood Luo told the AFR that Sydney housing is not overvalued or oversupplied, although he maintains some suburbs could have their own micro-economy and may be overvalued. Mr Luo said the company was also open to joint venture projects in Australia.
*
More than half the buyers of Chinese origin are supported financially by relatives from China, according to SMH March 31 citing real estate agency McGrath. The firm’s China desk has assisted in sales worth $140 million since it was established in September 2013.
*
Beijing backed Auswin TWT is launching two funds to tap Chinese investment into property. The developer’s General Manager Stephen Fitzpatrick is a panellist at Basis Point’s Aus-China Property Developers conference June 8.
The TWT Loan Fund and TWT Development Fund will have exposure to property developments via loans or equity respectively into Auswin TWT projects in Australia, according to the firm’s website.
Auswin TWT has five projects in Australia and is looking for new sites within 10km of the Sydney CBD. The developer is backed by Shun Tian Tong Real Estate Development Co that controls almost $1 billion in assets in China, according to The Australian (31 March)
Auswin TWT’s director Gavin Zhang told The Australian he expected more Chinese-backed companies to move into funds management, driven by the demand from Chinese investors.
Beijing’s Fu Hua Asset Management launched two property funds in Australia last year — Fuhua Aorui Australia Opportunity Fund and Fuhua Australia Melbourne Shangdongjun Fund, both aimed at Significant Investor Visa (SIV) investors.
*
AUX Real Estate Development has entered the Sydney market with the purchase of a $6.2 million development site in Willoughby. (AFR 17 March) AUX is a Chinese conglomerate whose main business is the manufacture of air-conditioning units.
*
Iwan Sunito’s Crown Group is exploring a dual listing on the ASX and an Asian stock exchange, according to the Australian (18 March). The developer, which has a $4.8 billion project pipeline, is aiming for a 2018 listing.
*
Juwai, China’s largest real estate portal for international properties and founded by two Australians, is also considering a float. (The Australian 21 March). The firm carries 2.6 million property listings from 89 countries, and has recently ‘institutionalised’ its senior management team.
*
GH Properties (Golden Horse Group) is in talks with an unnamed listed Australian developer to jointly develop its $1.6 billion residential project in Sydney’s inner west suburb of Erskineville (The Australian 15 March). GH is expecting a DA in May for the project.
*
Chinese developer Zhengtang has commenced its $300 million, 560 apartment project in Adelaide’s CBD. (AFR April 2). The firm has been active in Adelaide since 2010 and also owns a $60 million site in Sydney’s St Leonards.
For our China private wealth and Significant Investor Visa news, click here
Our agribusiness, VC and funds newsletter will be released next week on this website
Please register now for our 2nd Aus-China Property Developers Conference www.basispoint.com.au/