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Chinese property developers to benefit from East-West trade growth
Financing efforts for the 'One Belt, One Road' initiative have stepped into high gear. Hong Kong is set to play a key role in raising funds for massive infrastructure projects.
Major investment is required to develop new transportation networks and industrial zones, as well as supporting hotels and residential, office and commercial properties. A good chunk of the work, to be built in several phases, will be completed by Chinese property developers under the build-to-operate (BTO) model.
"The Chinese ability to build infrastructure efficiently is amazing. Although capital returns will not materialise overnight, Chinese developers do have the capacity and resources to build a high-rise block within just one to two years and a new railway line in practically next to no time at all," says Simon Chan, a Regional Director, with our Corporate Appraisal and Advisory Services (CAA) team, which has worked extensively on valuation consultancy projects for Chinese overseas investors.
That construction speed and efficiency needs to be matched with investment, and Hong Kong's financial sector and stock exchange are well-positioned to benefit from the integrated Shenzhen and Shanghai Connect programmes in generating funds. Mainland Chinese financial institutions, many with a presence in Hong Kong, and the Asia Infrastructure Investment Bank (AIIB) will raise investment for state-owned Chinese conglomerates on a scale the world has never seen before. There are also opportunities for investors to participate via Exchange Traded Funds (ETF) based on the Morgan Stanley Capital International Index (MSCI).
As funds flow in during the early stages of the initiative, so its promise to deliver unprecedented future investment opportunities increases.
'One Belt, One Road' will boost the transport networks, economies, industrial strength, and property markets of the nations along the ancient Silk Road that stretches from Asia, to the Middle East, Africa and Europe. In Southeast Asia, the key ingredients for rapid economic transformation are already in place, ready to be catalysed by the ability of mainland China's massive skilled labour force to build at breakneck speed.
"Increasingly, we see investors targeting nearby developing countries, such as Thailand, Vietnam, Malaysia and Philippines, and we expect this trend to continue to be driven by Chinese investment in the region," points out Jason Liang, Assistant Manager, CAA. "We already provide a great deal of overseas valuation and advisory services to Chinese construction companies, such as China State Construction (CESEC) and township real estate developers, such as China Fortune Land Development (CFLD) and Country Garden. We're also working with financial institutions, such as China Life and Ping An Insurance, to establish a presence in the emerging economies covered by One Belt, One Road."
Mainland Chinese developers plan to start this process by constructing entertainment and tourism destinations to attract overseas investors. Creating interest among overseas firms is expected to pave the way for development of nearby industrial zones on land now perceived as inexpensive. PRC developers also intend to bring their own Chinese workers, equipment and construction materials to destinations along the 'One Belt' via intra-Asia shipping routes.
In the final development phase, the Chinese property developers will build residential, office and commercial properties to enable companies to establish a base in these new industrial zones.
"Chinese developers invest in strengthening the efficiency of a city's infrastructure to make their real estate assets more valuable, which also helps improve the country's productivity and industrial strength," adds Liang. "The connectivity of facilities is the most eye-catching factor for real estate professionals because infrastructure is a key driver of property development and investment."
Infrastructure development lowers the risk of investing in emerging markets, Liang explains. There are already many Chinese construction companies based in Thailand and Sri Lanka, including the likes of Hong Kong and Shanghai-listed China Communications Construction Company. CCCC is the mainland's largest port construction, city development and design company with 34 subsidiaries. It is currently the world's fourth largest construction firm by revenue.
In Sri Lanka, CCCC is now the master developer for the Colombo Port City that will involve massive land reclamation and infrastructure development. At a recent Investment Summit held in Hong Kong, the company stated that its vision is to create the ultimate 'Gateway to South Asia', and to develop the Colombo Port City into a hub for business, trade, leisure and tourism.
"What's truly exciting about all these developments," says CAA National Director Gilbert Chan "is that One Belt, One Road is not just a concept any longer. You can see now that the finance is ready and the infrastructure is on the way."
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