Macquarie Bank and Schroders Asian Properties intend to form a $40 million joint venture Shanghai residential property development and funds management business, says Jaye Han, who heads up property investment banking for Macquarie in Tianjin. The JV aims to develop 6,000 apartments in six to 10 projects over the next five years in Shanghai, with the total end value targeted at $400 million.
Macquarie already has a stake in Waratah Gardens, a new residential complex in Pudong it is developing and managing, which will be included in the JV. All these properties are aimed at middle-class and upper-class families: senior employees at state-owned enterprises or workers rising through the ranks of multinational companies.
"Other asset managers want to include property in their portfolio, while property developers in places such as Australia and the US want to diversify into North Asia," says Han. "We always invite third parties to join our fund."
This JV was born out of Macquarie's expertise and local knowledge married with Schroders' capital. Macquarie first began property development in 1995 in Tianjin.
Han says last summer and autumn, China deregulated most aspects of the property market so that foreign players are treated the same as domestic developers, mainly to ensure smooth entry to the World Trade Organization. Foreigners used to pay a premium to acquire sites and needed special permits to develop them, while individuals were barred from owning their homes or purchasing property from domestic developers. Those restrictions have all fallen away.
Meanwhile the urban property market in China is quickly changing. In the 1970s and early 1980s, housing was purely functional, without thought of style or luxury, and workers were assigned units by their state-owned employers. In the late 1980s a new system emerged known as welfare housing, in which companies bought units for their workers, and the workers could keep these beyond retirement.
But Premier Zhu Rongji has pledged to phase this out, as it is crippling SOE finances, in favour of a policy known as monetarization. Under this system, companies don't buy flats outright but provide workers with housing subsidies. Workers and companies also pay into a compulsory housing fund scheme that employees can draw down. Third, people are expected to use personal savings or bank loans to buy flats.
Han says this mixed approach, by making people rely partly on their own savings, means buyers have quickly learned to become picky about the quality, location and attractiveness of apartments. The suppliers - such as Macquarie - are responding by using better quality building materials and paying attention to landscaping and facade design. Furthermore, the government is encouraging developers to sell flats with more amenities built in, not just 'shell and core' structures without appliances.
Since 2000, the property market has boomed, particularly in Shanghai, where the population has risen by 25% over the past decade. "Anything that was built was quickly bought by SOEs," Han says. Prices have been increasing by 10% annually, but he believes the rate of inflation is decreasing. Prices in December rose only 0.3%, versus rising 0.6% in November. "I see prices are stabilizing," he says.