Unlisted property fund manager SAITeysMcMahon is set for a high road to China as it expands into the Asia Pacific region.
SAITeysMcMahon’s head of property Graham Brewer said the fund manager is looking at a number of commercial real estate opportunities in China through an alliance partner.
Brewer said China is an emerging economy and shows no signs of abating.
“The GDP has grown by 9% per annum for the last 25 years,” he added.
Brewer could not elaborate on the size of the fund, however, he added, the fund manager will “go large” in China, rather than take a toe dip in the water.
“We have not invested any capital yet, but rather due diligence into the market.
“China is a different market and we must fully evaluate the risks and any issues that may arise,” Brewer told Australian Property Journal.
SAITeysMcMahon already has an alliance with a firm in China, operating out of Shanghai.
Brewer said the alliance is not dissimilar to that of Macquarie Bank, which has a presence in China, through its joint venture company First China Property Group with the Schroder Asian Properties LP Fund in Shanghai.
FCPG is a residential real estate development and funds management business, which aims to develop over 6,000 apartments.
Since 1995, Macquarie Property Group has developed more than 3,000 residential apartments in China.
Property analyst said local fund managers are looking offshore because it provides greater access to assets to a diversified portfolio, enabling them to achieve higher returns.
In addition, analyst said Australian investors are flushed with funds.
According to the latest Property Investment Research’s Unlisted Property Funds Review, the sector grew a massive 30% in 2005, from $13 billion to $17.1 billion in total assets.
PIR’s head of research John Welch told Australian Property Journal, the sector is likely to grow a further $6 billion to $23.1 billion in total assets in 2006.
SAITeysMcMahon is the fastest growing unlisted property fund manager in Australia.
At the end of 2005, SAITeysMcMahon jumped from seventh to second position with over $1.9 billion in total assets, behind Centro MCS with over $4.5 billion.
While Centro MCS has exported over $3 billion of capital into the United States market, local funds managers are also looking into the Asia Pacific region, because commercial real estate in Australia is too tightly held and capital values continue to increase whilst yields continue to compress.
PIR’s Unlisted Funds Review shows Overall Return On Equity has fallen from 10.3% in 2002 to 9.4% in 2005 and 1st Year Return on Equity has fallen from 9.1% in 2003 to 8.6% in 2005.
“It should be noted here that yield compression is having an impact on product development, with fund managers developing strategies to move away from the historical focus on income yield, to a total returns focus by driving capital growth,” PIR’s John Nicoll said.
Offshore markets are also larger and provide managers with more investment opportunities.
According to the UBS Global Asset Management Real Estate research, which shows Australia and New Zealand had $US329 billion in real estate assets, compared to Asia Pacific (excluding Japan) which had $US2,692 billion in assets.
At the ADPIA Annual Conference 2006, Westpac’s specialised capital group – property associate director Matt Lawrence supported the move by funds managers to go overseas.
However, he added, investors must be educated on where the income comes from and the risks associated with getting that higher yield overseas.
By Nelson Yap
