China Downturn Providing Opportunity for Citic and Grosvenor

The best time to invest may just be that moment when most other investors have given up on the market, at least that seems to be the case for Citic Capital and Grosvenor.

Both state-owned asset manager Citic and UK-based developer Grosvenor announced plans recently to take on significant new projects in China, at the same time that many other developers are expressing unprecedented pessimism about the market.

Grosvenor, which is owned by Britain’s Duke of Westminster, told the Financial Times this week that the group is shopping for a residential site in Shanghai to start a project within the next year. This decision appears to fly in the face of a recent survey by Standard Chartered which showed that an increasing number of Chinese real estate developers have no plans to buy more land, as many of them expressed decreased confidence in consumer demand for new homes.

Similarly, Citic Capital, the private-equity wing of Chinese government investment conglomerate Citic, announced plans to launch two retail projects on the mainland this year, including one in a second-tier city.

In an interview with the South China Morning Post, Stanley Ching, senior managing director of Citic Capital’s real estate business admitted that the situation for real estate development is challenging, but hinted that this may be the best time for stronger players to seize their advantage. “In general, China’s retail property market faces oversupply. But winner takes all,” said Ching.

Grosvenor Finding Opportunities in a Down Market

The comments by Ching, who was part of a panel discussion on investment opportunities that I chaired at the Real Estate Investment World conference in Singapore during June, appear closely aligned with a position that Yu Yang, Grosvenor’s Managing Director for Greater China Investment made during that discussion.

“We will see a lot of opportunities (this year), because the only opportunities that some developers have to raise cash and save themselves is to sell whatever they have,” Yu said at the time. Adding that, “…it (the downturn) does present us with a huge opportunity.”

Now Grosvenor appears to be making good on that plan by targetting its first development project in the country, after previously only taking on renovation projects. In his conversation with the Financial Times, Nick Loup, Grosvenor’s chief executive in Asia pointed out that, “We’ve always had a very long-term idea of what we wanted to do in China. This is the obvious next step for us.”

At this point, Grosvenor has not specified what type of site it is looking for or what locations it prefers within China’s commercial capital.

Citic Capital Likes Retail Real Estate

While Grosvenor has set its sights on home development, Citic Capital seems to be taking aim at the mainland’s shopping malls, a segment which has fallen distinctly out of favor in 2014.

Speaking of his company’s investment plans to acquire retail developments in China, Citic’s Ching told the SCMP that, “We plan to close the two deals by the end of this year, with each one more than 100,000 square metres in gross floor area.” While not yet ready to give details on the amounts or locations of the acquisitions, the experienced China investor did reveal that one of the two projects is in a first-tier metropolis, while the other is in a second-tier city.

Speaking with me at the Singapore event, Ching explained Citic’s interest in retail as being driven by China’s push to move people into urban areas, as well as the government’s decision to shift the economy towards a consumption-driven model. “So with the urbanization and the increased population in as well as the increased consumption, you will see there will be real demand for good quality, well managed shopping malls,” Ching said at the time.

As for the risks of the downturn, Ching, like Grosvenor, seems convinced that the long-term trend would come his way. “One of the driving forces in China is urbanization and the other is consumption,” Ching said. “This has been the government’s top agenda for the past ten years, I’m sure it’s going to be the top agenda for the next twenty years.”