A new wave of Chinese investors hit town.
If Winston knew what has been going on in downtown Auckland over the last 12 months or so who knows he may have won the election!
Deals in the pipeline or in some cases already settled in Auckland City indicate that the Chinese appetite for property has finally and demonstrably moved from solely residential into the city and such appetite is growing, no doubt fuelled to some degree by changing Chinese internal regulations which seem to have hastened rather than stymied Chinese investment.
One has to be careful how one expresses oneself in this space. Singaporeans, Indonesians and Hong Kong Chinese investors for example have been active in downtown for in excess of two decades. Hong Leong from Singapore have one billion dollars worth of hotels and motels in NZ with zero debt and took a large position in this sector picking up a lot of property at bargain basement prices after the stock-market crash of 1987 when kiwi corporations were pretty much rendered insolvent. Strategic in their approach and experienced in working in Western legal systems they have taken long term positions in our down town property market often as a relatively small portion of a diversified international property portfolio.
But what only a few of us are currently aware of is the recent large acquisitions of development sites and some of New Zealand’s top commercial properties by the Mainland Chinese over the last 12 months or so – clearly some of the trigger points are different but the numbers are quite staggering when properly understood.
The writer would predict that it will another 12 months or so before some of these latest acquisitions get into the public arena but in the roughest of terms we are talking about some $600 million dollars worth of primarily development sites that are in the throes of or have already changed hands.
These include development sites in Custom St, Albert St, Elliott St, Greys Avenue, Queen St, Commerce St, Mt Eden, the waterfront, and elsewhere.
If all of these projects were to come on-stream at once (which they won’t) we would be looking at potentially another $2 billion dollars worth of mainly high-rise construction largely in addition to the $10 B worth of construction Anne Gibson of the New Zealand Herald recently identified around Auckland.
Quite where all of the skilled tradesmen will come from to complete these projects is an obvious question and perhaps Sir Bob Jones is the only fellow in the country who can see a potential panacea with any clarity and has the lack of political correctness to lay it down.
From a kiwi developers point of view some of the purchase prices achieved for these downtown sites defy all logic and sensibility (in some cases well in excess of $20,000 /m2) and when plugged into feasibility studies say in the context of a new apartment project mean that the completed units will need to sell for previously unheard of record prices if any margin is to be made. Typically, kiwi high-rise apartment developers have targeted a pre-tax rate of return of around 25% and this may well coincide with escalating construction costs so it is a fascinating time indeed.
But no one can say for certain where the finish line is or precisely what the future holds when one plugs in all the considerations economists use when trying to predict our economic future. Certainly, some older commentators who have been through a couple of property cycles will become increasingly more vocal that a correction is imminent but that is hard to reconcile right now given the current cost of credit, internal and external migration, Auckland’s housing shortage, traffic woes and so on.
Another related facet of Chinese investment in the city and their development plans is that nearly all of them want to bring their significantly cheaper building products and labour. Some smart operators are busy in this space and despite New Zealand being a small market, some Chinese suppliers are grasping the nettle and seeking both Australian and New Zealand building material supply approval and certification – in the roughest of terms, some would predict 25% savings for construction materials in the future and the court of public opinion very much approves smashing open monopolies but issues of quality assurance and so on will subsist.
These new investors and developers of Auckland City and beyond are very much a mixed bag. Some have no idea whatsoever, are managed by others who are equally incompetent and couldn’t organize a piss up in a brewery and will struggle to get any project out of the ground. Others are very experienced with more development experience than Kiwi, Precinct and Goodman combined but still need to tailor their projects to our smaller population and will not have the sophistication or credibility or local experience of companies like say Manson TCLM when it comes to attracting corporate New Zealand to new office headquarters … but hey they can buy these buildings anyway and will do so.
The other interesting phenomenon for some of these Chinese investors is their unique ability to securitize assets in China and ultimately arrange their senior debt for acquisitions and construction funding with Chinese banks which have obtained New Zealand banking licenses like ICBC, Bank of China and the China Construction Bank. Ultimately, this should provide Chinese property development companies with cheaper funding lines making projects more profitable which will be causing some concern for our Australian owned banks.
So is it a given our fair Queen city will come of age and become the most liveable city in the world?
One must hope so and to quote a wiser soul (Chief Vitalstatistix – Asterix & Obelix): “we have nothing to fear but the sky falling on our heads”
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Marcus Beveridge is the Principal (owner) of Queen City Law. His main areas of practice are construction and property law, commercial law, foreign investment, real estate services and immigration. Read more about Marcus here.
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