The equity markets were facing south this week, their attention on Greece, with Heathrow playing second lyre. But attention should perhaps have shifted east, where you may have missed a significant step by a Chinese investor.
The threat of Grexit drove the biggest monthly fall in the FTSE 100 index in three years. On Wednesday, shares in London and across Europe rose sharply on reports that Greece would accept most of its creditors’ bailout conditions. Property stocks have been immune so far, but the consequences are beginning to resonate. The bond markets have been resilient, but investors – whether bond, equity or real estate-orientated – will be watching Sunday’s Greek referendum closely.
And in terms of consequences, that’s where consensus ends. For some, Grexit could trigger Brexit, depressing rental growth and causing a correction in pricing. Others, not least Capital Economics, believe the opposite to be the case.
“We suspect a Grexit would lead to weaker occupier markets across the whole of Europe and higher property yields in the periphery markets,” says property economist Kiran Raichura. “But safe havens such as Germany, the UK, Switzerland and Sweden may benefit from increased demand from risk-averse investors.”
By contrast, other than boosting airline share prices, the decision to back Heathrow had muted impact. SEGRO’s response was pretty flat, for instance (p36). Had the markets really assumed that Sir Howard Davies would make the only sensible decision for UK plc? Or had they (rightly) priced in the fact that the corporate equation was more easily solved than the political. Both probably.
Into this mix throw Fosun. China’s largest private investment company has agreed a new joint venture with Resolution Property to source value-add deals across Europe.
It is the second time Fosun has bought into an asset management platform to source deals outside China, following its acquisition last May of Japan’s IDERA. Owning a majority stake in Resolution Property Investment Management gives the company a significant platform for European growth.
Resolution has an established track record in buying unloved properties in emerging locations and transforming them into buildings that are highly sought-after by the creative and digital sector. With Fosun’s backing, the new platform will export the approach to new European cities.
The decision to buy into an established player speaks volumes about Fosun’s impatience and ambition. Like other investors, it has struggled to make the inroads it hoped through single-asset purchases. Buying into an existing asset management platform will enable it to go further faster. Others will be of a similar mindset. And rest assured: listed propcos are in investors’ sights too.
Former RBS deputy chief executive Chris Sullivan was brutally frank when he spoke at a Chartered Surveyors Livery Company lunch I chaired last month.
During his talk and Q&A he stated that lending to property had caused “concentration risk”, identified banks as the “facilitators” of the global crash and said UK financial institutions were not as sophisticated as their US equivalents.
“Bankers don’t learn the lessons,” said Sullivan. “If I look through my career – four cycles, four recessions – the same mistakes were made by banks in every single one of them. Exactly the same mistakes. And if you look at each other and think, well, if the determinate of intelligence is that you learn from your mistakes, then it’s not an intelligent industry.” Ouch.
In the hunt for stock, investors such as Fosun might want to make use of a new service from Estates Gazette. Launched this week, EGi Site Finder identifies potential residential development sites in London. It covers sites with planning permission, stalled developments, local authority sites as well as London Residential records and building reports. Click here for details
