Into the China market

Into the China market

Danny Chung

Friday, March 30, 2007

Grosvenor, a British-based property development and management company, is pressing ahead with investment plans for China, undeterred by government-imposed curbs to cool the property sector.
Head of investment John So Li-chuan, who hails from San Diego, California, is not put off by the various measures introduced last year by the authorities, such as restrictions on foreign ownership and taxes on short-term holding of properties.

"If anything, it's strengthened our conviction. From Grosvenor's standpoint, we have a long-term focus," he said.

The government's moves are understandable, concerned as it is to prevent overheating in the property sector, which could damage the overall economy.

"From an opportunistic standpoint, it actually makes it more interesting to enter the market now because you're getting the speculators and froth out of the market," So said.

Grosvenor does real estate business as a developer, an investor and a fund manager.

In the past, Grosvenor has concentrated mainly on the luxury residential sector in Asia but it is only natural to target retail as well, So said, pointing to the company's extensive retail presence in the United Kingdom and Europe as a developer and investor.

In fact, which sectors it goes into will depend on the investment vehicle.

As a developer, it will focus on residential initially and then go into retail in the medium to long term.

On the investment side, it will focus mainly on retail and residential.

Office and industrial will be considered if it meets Grosvenor's criteria but is expected to be only a minor portion of the firm's business.

Grosvenor has invested about US$1.5 billion (HK$11.7 billion) in Asia, of which about two-thirds is in Japan and the remainder in Hong Kong.

"It is very skewed towards Japan and that has been a focus for us in the past three or four years where we have seen the recovery of Japan coming through," So said.

But in the coming 12 to 18 months, growth is expected to come more from China and Hong Kong. The long-term objective of the portfolio is for China, Hong Kong and Japan to get one third of investment each.

Grosvenor aims to set up a China fund by late 2007 which will focus mainly on retail and residential.

"We do think they dovetail quite nicely in terms of branding [of Grosvenor]," So said.

The newest and latest malls being built in China are of good quality "but in terms of location, they've kind of missed out."

On the other hand, five- to 10-year-old malls on top of subway stations offer prospects of good returns with repositioning and refurbishment.

So far, initial response has been encouraging to the planned US$250 million fund.

"There is a fair amount of interest from Japanese investors," So said. But will Grosvenor refuse some investors' applications if it turns out to be oversubscribed?

So said he hopes not because it is difficult to turn money away and he does not want to disappoint investors.

"This is something we have had to do in Japan [turn investors away]. Obviously investors are very understanding," he said.

Grosvenor's active projects include a 50-50 joint venture with local listed developer Asia Standard International Group (0129) at Castle Peak Road, Yau Kam Tau, near the Ting Kau Bridge.

The two partners bought the site in November 2004 for HK$261 million.

On completion in 2008, the high-rise residential block will offer 200,000 square feet of residential space for sale.

Grosvenor first invested in Asia Standard in 1999 and currently its stake stands at 14.78 percent.

So was coy when asked about the performance of this investment.

"Put it this way. Investments never turn out as you expect them," So said.

In his experience, investments in general have a "guarantee 100 percent of the time" that they will not hit targets.

Still Grosvenor is "very pleased" with its partnership with Asia Standard.

"If you look at Grosvenor Place [a joint venture with Asia Standard in Repulse Bay], we wouldn't have been able to do that without Asia Standard. Conversely Asia Standard may not have been able to it without us," So said.

The award-winning luxury residential project at Repulse Bay, completed in September 2003, was sold in April 2004 for HK$940 million to a local private company.

In China, Grosvenor is currently wrapping up a deal to buy a residential building in Shanghai which it plans to refurbish later this year.

So declined to give exact details other than say it is in a good location near international schools and office districts.

"In terms of quality, it has deteriorated so that's why we were interested in purchasing it. We feel there is a lot of upside we can add by essentially redoing the entire property," So said.