Gulf investors face Great Wall

Investors from the Gulf region should be wary of the potential minefield that awaits them as they look to be part of China’s real estate gold rush.

That was the message from a panel of experts at property event Cityscape Global yesterday, who said their advice applied equally to the individual investor or the cash-rich sovereign wealth fund. 

Richard Davis, of property investment firm Treasury Holdings Group, told an audience at a discussion of current global real estate opportunities that sovereign wealth funds which have invested in Chinese real estate have been frustrated that their investment must be managed by sub-standard local firms.

“There are worries of discomfort with management teams where they are quite distant from the asset,” he said.

Meanwhile, Li Li, founder of real estate investors ISG Capital, said that despite knowing the market well, she often found it an uphill struggle.

She said that Beijing had a particularly tight grasp on residential real estate - preventing foreign investment in a potentially lucrative market where China must find homes for the millions migrating every year from rural villages
to its increasingly bustling cities.

“The biggest barrier is the currency restrictions. Two years ago the government started restricting foreign capital investors,” she said.

But the panel agreed that commercial real estate, designated as an “encouraged” investment by Beijing, is much more open to outside interests.

Investors looking to collaborate with local Chinese developers on such opportunities are often stymied by the cost of borrowing from Chinese banks - with one member of the panel saying that lending rates, which can reach 30 per cent, are “sucking the liquidity out of the market”.

But the signs are that many from the region will still head East, given the potential rewards.

“What they have told you, and what you have read about the Chinese consumer is true. It is happening - 10 to 15 per cent per annum wage growth over the last 12 years. They are buying cars, they are buying everything,” Davis said.