Developers discover room for growth overseas

As competition in the core market has intensified and "hot" investment opportunities have diminished, investors are now moving into second-tier markets, according to research by LaSalle Investment Management, a subsidiary of Jones Lang LaSalle Inc.

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"For instance, investors are actively seeking opportunities in London, Munich and Paris, but they also have an eye on Manchester, Bristol, Berlin, Frankfurt and Lyon," said Paul Guest, head of Asian research for LaSalle Investment Management.

Michelle Zhang, head of China residential business for Knight Frank, noted that Chinese investors, especially individuals, have shown strong interest in Manchester instead of London because of higher investment returns.

"They are mainly entrepreneurs, and their investment is purely for financial purposes. Theoretically, they could get an investment return of around 60 percent if they can get bank loans," said Zhang.

According to Xie Zhigang, chairman of Beijing Vereal Investment Holding Group, the profitability of developing projects overseas could be even higher than for domestic projects.

The company is mainly looking at investment opportunities in the US, mostly in second-tier cities.

Chinese property developers' strong interest in Malaysia - not a traditionally hot destination for Chinese investors - is a typical case of expansion into second-tier markets.

Following Country Garden Holdings Co Ltd's success in Malaysia last year, Greenland said this month that it had reached two deals (residential and hotel) in Malaysia, with an investment of $3.3 billion.

In February, Agile Property Holdings Ltd spent 430 million yuan to buy a site in Kuala Lumpur, making its debut in Malaysia.

Statistics from international real estate service provider Savills Plc show that Chinese institutional and individual investors invested $1.9 billion in Malaysia last year, higher than their investment in Hong Kong ($867 million), Singapore ($1.8 billion) and Australia ($1 billion).

Chinese investors have little knowledge of overseas developers. Therefore, they prefer to buy projects developed by prominent Chinese developers, said Zhang.

But Ding Zuyu, executive president of E-House (China) Holdings Ltd, said that Chinese developers' overseas expansion is just getting started, and they need time to gain experience.

"Because of the huge growth potential at home, it's unlikely that going abroad will become a mainstream strategy for Chinese developers," Ding added.

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