Property Fund Hopes To Tap Into Chinese Real Estate's 'Huge Potential'

by Phillip Morton, Investors Offshore.com

06 March 2006

A China-focused real estate fund, which aims to provide high net worth and institutional investors with access to a portfolio of real estate projects in Greater China with strong growth potential, is hoping to raise US$500 million by the middle of the year.

The Rockefeller Group Sinolink Greater China Fund will target investments through different investment channels, and it will encompass several large cities in Greater China such as Beijing, Shanghai, Shenzhen, Hong Kong and provincial capital cities.

The investment objects of the fund will include mainly high end large scale property complexes such as residential, office towers and commercial plazas.

Last November, Sinolink, a China-based conglomerate which focuses on the energy market as well as property development, also signed an investment agreement with the Rockefeller Group to participate in a property development project in an historic area of Shanghai.

Known as the Shanghai Bund de Rockefeller Group, the project represents a significant re-development of Shanghai in an area along the Huangpu River occupying 180,834 square feet of land, which includes seven famous historical buildings.

The re-developed site will consist of commercial and cultural facilities, service apartments, office buildings as well as public squares in the blueprint, with a total floor space of 1,011,808 square feet. It is estimated that the project will cost approximately US$300 million (HK$2,340 million).

Commenting on the partnership between Sinolink and Rockefeller, Jonathan D. Green, President and CEO of The Rockefeller Group expressed confidence in the "huge potential" offered by the Greater China real estate market.

"Teaming up with a well-respected developer like Sinolink will provide us a strong access to the PRC real estate market, and further guarantee the success of the project," he observed.

The Rockefeller Group is an owner, developer and manager of prestigious commercial real estate, and is perhaps best known as the developer behind the Rockefeller Center commercial complex in New York City.

The company, a unit of Japan-listed Mitsubishi Estate Co., also manages property in New Jersey, Florida, Illinois and California and has more than 13 million square feet of building space under development.

Real estate prices have been surging in China, and developers have been keen to cash in on the boom by constructing mainly high-end commercial and residential developments. However, rapid urbanization in recent years has led to an explosion in the urban population and left a severe shortage of housing in many cities for low income workers, leading to government attempts at cooling the construction boom with new taxes and restrictions on development.

Last May, the government attempted to head off a real estate bubble by raising home-loan interest rates, limiting urban demolition and levying taxes on housing sales. More recently, Construction Minister Wang Guangtao said that new policies would be designed to restrict land available for high-end developments while encouraging medium to low-priced projects.

The government is concerned that housing prices are steadily moving beyond the reach of ordinary citizens, particularly in growth centres markets like Shanghai, where prices have jumped nearly 70% in the past two years. Apartments downtown sell for more than $300,000 - far beyond the reach of the average citizen and in an attempt to quell the high turnover in property sales, Shanghai last year imposed a 5.5% capital gains tax on properties sold more than once in a year.

Nonetheless, the latest figures released by National Bureau of Statistics show that the government's macroeconomic control measures may at last be having the desired effect on the national real estate market. According to the Bureau, sale prices of newly constructed houses in the 70 cities grew 7.5% year on year in the fourth quarter of 2005, 3.6% lower than in the same period of 2004.

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