Chris Brooke: Post-recession China poses new challenges for investors

By the end of this year, the government of China expects to have spent $586 billion in stimulus funds. The spending was implemented in 2008 to bolster domestic demand and consumption to offset the impact of reduced exports to the U.S. and Europe. With so much cash in the China market, U.S. investors can no longer rely exclusively on their ability to bring cash to a deal because they are now competing with domestic investors, says Chris Brooke, president and CEO of the Asia business unit for CB Richard Ellis.

Since 2006, Brooke has served as president and CEO of the brokerage’s Greater China business, overseeing offices throughout Mainland China, Hong Kong, Macau and Taiwan. In China alone, CBRE has 12 offices with 900 full-time employees. That total rises to 3,000 when including on-site property management and residential sales staff. In July last year, the Beijing-based executive took on an expanded role, overseeing the company’s operations across Asia, excluding India and Japan. Brooke, who speaks enough Chinese to “get by,” recently talked with NREI about the investment climate in China.

NREI: How has China’s commercial real estate market changed?

Brooke: The context of the China investment market has changed over the last 18 months. Two to three years ago, there was a shortage of capital and domestic investors within China. They were very much reliant on foreign investors coming in and buying assets, providing equity to development projects.

With the stimulus package, that all changed because there’s so much liquidity in the system, it’s not just about the money anymore. Foreign investors also need to be able to offer specialist expertise and asset management capabilities. The government has started to relax the regulatory environment so that insurance companies can get involved in real estate.

NREI: What risks should investors be aware of before entering China?

Brooke: The biggest ongoing risk in China centers around policy. The real estate sector forms such an important part of the broader economic growth of the country. It contributes a very significant percentage of the GDP growth. The government has to strike a very fine balance between allowing the real estate sector to grow — and thereby allowing wealth generation and wealth creation — but at the same time not allow the market to get overheated.

Other risks are the possibility of inflation going forward. How’s the government going to deal with that? Also, is the Chinese government going to need to raise interest rates either to combat inflation or to deal with rampant appreciation?

NREI: How did U.S. investors in China fare during the recession?

Brooke: A lot of investors had to liquidate assets, or they took the view that it was a good idea to liquidate assets or funds over the last 12 to 18 months. So, we have seen investors disposing of assets, particularly in the second half of 2009. Developers like Hines, Tishman Speyer and Portman Holdings are looking at more of a development scenario, so they’re taking a longer-term view and looking at returns later this year and into 2011 and 2012.

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