While developers such as Fosun and Greenland have grabbed the biggest headlines in recent weeks with their billion dollar ventures into US real estate projects, these corporate giants appear to be simply following their customers, rather than blazing a new investment trail.
Giant Developers Have Made the Biggest Splash
The investment numbers for Fosun, which recently acquired the Chase Manhattan building in New York for US$725 million, and for Greenland Group, which announced an agreement to take up a 70 percent stake in the $4 billion Atlantic Yards project in Brooklyn, naturally attract major attention.
Greenland in particular has been moving aggressively to acquire property development projects outside of China this year. In addition to the Atlantic Yards deal, the company also acquired a $1 billion residential site in Melbourne, Australia during this month. These acquisitions followed the company’s acquisition of the $1 billion Metropolis project in Los Angeles during July and its investment in a $498 million residential project in Sydney during March.
And China’s biggest developer, Vanke, has also joined the US land rush, agreeing to co-develop a San Francisco residential project with US developer Tishman Speyer during March.
Chinese Consumers Buying Homes Overseas
For all of the apparent boldness of these investments, however, this migration of investment overseas can also be seen as scramble to hold onto their existing client base.
These giant Chinese developers have grown rich over the past few decades by selling to wealthy Chinese individuals. And these wealthy individuals are increasingly looking for opportunities to buy real estate overseas.
The correlation between developer investment decisions and Chinese consumer preferences can be seen by looking at the locations chosen by the developers for their overseas ventures.
Project Locations Match Consumer Preferences
Mapping out locations for the major investments by Chinese developers shows how closely they correlate with destinations preferred by Chinese home buyers. (Since most of these Chinese individual investors are buying residential space, we will only look at projects that have at least some residential element).
San Francisco – Vanke
New York City – Greenland and Xinyuan Real Estate
Los Angeles – Greenland
Sydney – Greenland
Melbourne – Greenland
According to a study this year by the National Association of Realtors (NAR) in the US, more than half of the California homes sold to foreign buyers were sold to Chinese. So it’s not surprising that two of the major investment projects are located in Los Angeles and San Francisco.
And the same study by the NAR, reveals that Chinese investors are the second largest foreign buyers of real estate in New York City. And both Greenland and Xinyuan have projects in the New York borough of Brooklyn.
And in Australia, where Greenland is developing projects in Sydney and Melbourne, one recent study projects that the rapid influx of Chinese buyers is expected to inflate home prices in Sydney by 10 percent this year. In Melbourne last month, one wealthy mainlander flew in on his private jet and picked out a new home for A$20 million.
So if you are an investment broker pitching deals to China’s developers, figuring out what opportunities they will be most interested in should be easy work. Just get some numbers on how much Chinese individuals are investing in the market, as the builders appear more than ready to follow their client base.