Morgan Stanley, which bought US$8 billion of Japanese real estate last year, said it will triple investment in Chinese property this year, shifting emphasis from Japan in a bet on the world's fastest-growing major economy.
The world's third-biggest securities firm will add US$3 billion to investments in China this year, Sonny Kalsi, global head of real estate business at Morgan Stanley, said. The New York-based company has bought US$1.5 billion of Chinese property in the past five years, he said.
Morgan Stanley is betting economic expansion that averaged 9.2 percent a year over the past decade will drive prices higher in a market that saw Shanghai property values almost triple in six years. Land prices in Tokyo rose last year for the first time since 1990 as Japan's economy, the world's second-biggest, grew at its fastest pace since 2000.
"We have a very constructive view on China: We like the economic story and we like the real estate story," Kalsi said. "We have a very deep pipeline and there are a lot of things going on. I wouldn't be surprised if we invest this year as much capital in China as we do in Japan."
China's government last year raised minimum mortgage rates, tightened lending restrictions and imposed taxes to slow the rise in urban property prices, which it said threatened social stability.
"Shanghai was overheated last year," said Jeff Yau, analyst at Kim Eng Securities Ltd in Hong Kong. "Prices have come down 15 to 20 percent and are approaching a reasonable level."
China offers a lot of room for institutional investment in real estate, says Michael Hart, head of research in Shanghai at Jones Lang LaSalle.
"What we're seeing is just the first wave," Hart said. "Of the top 50 office buildings in Shanghai, only two or three are owned by foreign institutions."
Price gains in Shanghai, Beijing and other Chinese population centers won't scare off global investment, according to Hart.
"The issue in China isn't price," he said, "It's finding properties with clean and clear title."
Overseas investors including Morgan Stanley, Goldman Sachs Group Inc, Ripplewood Holdings LLC and Lone Star Funds went on a spending spree in Japan during the late 1990s, buying commercial real estate from banks laden with bad-loan collateral after the nation's 1980's bubble economy collapsed. Goldman spent more than US$6 billion on Japanese property since 1997.
"It's hard to imagine Morgan Stanley would shift away from Japan so easily, but it would be good news for other investors here," said Ryosuke Homma, president of Kenedix Inc, a real-estate investment management firm in Tokyo.
Real estate investment trusts and pension funds are replacing other investors in Japan as prices rise, Homma said. Buyers are having to work harder to find good acquisitions as the market becomes more active.
Some investors in Japan have begun reaping profit. Goldman earlier this month sold 45 billion yen of shares in a hotel and resort trust, and has hired Daiwa Securities SMBC Co to manage an initial public offering for its Japanese golf business.
(China Daily March 14, 2006)
