Investment in Chinese property prime opportunity: Braithwaite
All-time high property prices in North America might be just the bait institutional investors need to get them hooked on buying real estate in China.
At least that’s the hope of Lorne Braithwaite, long- time chief executive of Cambridge Shopping Centres Ltd., who has planned a major conference in Toronto next month to discuss investment in Chinese property.
Among the speakers are Lee Lam, a senior vice-president of Chia Tai Group, a US$9-billion real estate giant with investments in Shanghai, Hong Kong and Bangkok. His company was granted the first foreign licence to invest in China.
Dubbed Chinese Real Estate: A New Institutional Asset Class? the conference will serve as a how to for institutional investors thinking about investing in the communist country. Eventually Mr. Braithwaite hopes to convince some of those institutions to invest into a $ 100- million to $ 300- million fund that will buy property in China.
He has watched as real estate prices have soared since his company was bought out about five years ago by Ivanhoe Inc., a subsidiary of the Caisse de dépôt et placement du Québec. The subsidiary has been renamed Ivanhoe Cambridge.
“ If you look at the capital flows into the real estate sector, they have been huge,” he said, in an interview yesterday. “ The institutions want to invest 5% to 10% of their assets into real estate.”
This demand has driven real estate prices up and capitalization rates, or the rate of return investors are willing to accept on a property, down to less than 6%. “Those types of rates are now pretty common. When inflation is 2% to 2.5% and you have to spend money on real estate to [to maintain it], how much of a return are you getting.”
He added development opportunities in Canada and the United States also keep shrinking. Mr. Braithwaite, when he was CEO of Cambridge, helped put together the new Vaughan Mills Shopping Centre north of Toronto which opened in November. It was the first major mall to be built in the country in 14 years.
“There might be another two or three big enclosed malls in this country that can be built in the next 15 years. There is not a lot of opportunity. The United States is the same,” said Mr. Braithwaite.
The scarcity of investment opportunities pales next to what can now be accomplished in China. The Costcos and Wal-Marts that were developed in the past 15 years in Canada and the U.S. are now going up in China, he says.
Mr. Braithwaite said the oneparty state will lease you land for a development for a period of 70 years and then the state-owned bank will loan you money for the project. “ You have an ownership stake in it for a 70- year period.”
So far, few Canadian institutional players have moved into the Chinese market. The exception is the Ontario Teachers Pension Plan Board, which has been in China for almost a decade.