Just as the world has gazed enviously at major hub airports funnelling growth across China, Hong Kong and Singapore, so too should it look upon the region’s emerging real estate opportunities. A continuing domestic bias on the part of many European institutions suggests they are tied to Europe more by emotion than performance.
When I left my role as head of the global real estate team at China Investment Corporation to set up BEI Capital, the ambition was to create a two-way investment platform between the West and the Far East.
We began by taking Canadian pension money into the Asia Pacific and started bringing Chinese and Asian money overseas.
The Chinese nation’s allocation into real estate is only just beginning, standing at less than 1% of GDP. Growth of five to 10 times that amount over the next decade is possible.
London is popular for all the usual reasons – its location, judiciary and tax system – but above all, because many Chinese institutional managers have visited the city many times.
Yet investors continuously under-allocate in foreign markets and across major tier-one global cities. This reduces opportunities and amplifies the risks of overexposure to any single market.
Just as Chinese and Asian capital has been ploughed into London, there are equal opportunities on the return journey, many of which are not being taken. People have had little exposure to Chinese or Asian cities – despite their core fundamentals perfectly replicating the eurozone’s tier-one cities.
Although China’s legal opacity puts off some investors, the Western media has exaggerated fears over its slowdown. China is not one country. Consider how Europe extends from London and Paris at one end to Sofia and Bucharest at the other.
Sprawling urbanisation, a large middle class, high-speed trains and improved infrastructure have created unparalleled opportunities. Our job is not to understand all of China, but to understand a region of China and see the dynamics beneath it.
Working closely with the most established developers and the right local operators is key to driving value. Our focus isn’t just on taking money in or out; we are actually trying to create a club of major institutional investors comprising Asians and Chinese on one side and the North Americans and Europeans on the other.
People should stay focused on tier-one cities. Tokyo, Beijing, Shanghai, Hong Kong, Shenzhen and Singapore are all on a par with New York, San Francisco, London and Paris. And there is a growing appetite for schemes that support a 24-hour lifestyle by blending workspace, retail and housing.
Demography is a fundamental of real estate. Young professionals live near their places of work just as major businesses cluster around these major tier-one cities. For example, Ali Baba is about an hour’s train ride from Shanghai, in Hangzhou. We can gradually see three or five cities aggregating into one metropolis.
The crucial difference between East and West comes from the quality of infrastructure. How far you can commute in one hour determines population spread. Asia has a far greater clustering of population as a result of investment in infrastructure.
If you draw a circle around Shanghai whose radius is the distance of an hour’s commute, it would contain almost 75m people. If you draw that circle around Hong Kong and Shenzhen, it would contain 80m-100m people, more than the population of the UK.
The best investors will be those able to leave their emotional ties on the plane and judge investments by the data in front of them. Finding capable partners able to ride on every cycle isn’t easy, but there is more low-hanging fruit across Asia Pacific than many people think.
Collin Lau is founder of BEI Capital
