Big sales to China forerunners of more to come

5:00 AM Saturday September 12, 2015 Colin Taylor

Aerial view of the big 6.2 ha Springpark Stages 2-3 development in Mt Wellington - purchased by Chinese interests and identified by a red border.

Two big development sites in Auckland have been sold to Chinese investors and it’s predicted there will be no diminishing of the Asian appetite for New Zealand commercial property.

The 6.2 hectare site comprising the second and third stages of the massive Springpark development in Mt Wellington and a 4 ha freehold site in Hobsonville were sold for a combined total of $44 million by Kathy Ying of Whillans Realty Group.

The properties were sold to Chinese development and investment interests,” says Kathy Ying of Whillans Realty Group who has been instrumental in negotiating $150 million in commercial property deals since the start of this year - all to offshore and resident Chinese investors.

“The Chinese groups interested in the New Zealand commercial and development property market are all high calibre developers and investors, looking to diversify out of Asian markets,” she says. “They are seeking long term development and investment opportunities here and could help Auckland to fill the gap in the housing supply market.

“These people have good track records and good balance sheets and are not likely to leave Kiwi companies in the lurch,” Ying says.

She says Auckland, as a national gateway city, has quickly become a preferred destination for investors looking for real estate opportunities outside of China.

“New Zealand ticks most, if not all of their boxes in relation to our clean environment, good school system, open immigration policy and having western legal system.. These are major drawcards for these buyer groups and New Zealand has been regularly ranked as one of the top five global property destinations for Chinese investors. This is impressive given the size of the countries we are ranked alongside including the United States, Australia and Canada.”

The 6.2 ha Mt Wellington Springfield site sold by Ying is less than 1.5 km from the Sylvia Park shopping centre and is held in two contiguous freehold titles. While most of the site is zoned Special Housing Area (SHA) it includes a commercial component of 439 sq m in the form of retail space for a cafe and/or small convenience shops to service Springpark residences.

The Hobsonville site sold by Ying is on Hobsonville Road and was re-zoned in April last year for the development of a new convenience retail centre.

The rezoning allows a mix of service stations, takeaway food outlets, restaurants, liquor stores, automobile and marine suppliers, offices and residential apartments from the first floor of any development. 

Foodstuffs owns an adjacent 2.6 ha site and Progressive Enterprises will occupy a new 3950 sq m Countdown Supermarket currently under construction and associated retail and office complex less than 300 metres east on Hobsonville Rd.

Ying says that in the last month there have been three large-scale Chinese residential development groups looking for landmarkdevelopment sites in Auckland.

Her buyers are mainly interested in residential development opportunities and passive office and retail investments.

“With Auckland’s population set to grow by an additional half million people over the next 15 years, and the region already facing a shortage of housing, investors perceive the city’s supply imbalance as a long-term growth story.

18-26 Wellesley St, Cnr with Lorne St, X Gallery bldg.jpg

The X-Gallery on the corner of Lorne and Wellesley Street in the Auckland CBD reportedly sold for around $26 million to a Chinese buyer. 

“Our attractive high investment yields and relatively low entry prices for landmark office and retail investments has also seen a surge in offshore acquisitions,” says Ying who also sold 229 and 246 Queen Street to two separate Chinese investors earlier this year.

Ying says she understands the X-Gallery on the corner of Lorne and Wellesley Street was also sold for around $26 million to another Chinese buyer.

Bruce Whillans, managing director of Whillans Realty Group, believes Ying’s 15 years of experience as a registered architect, combined with her fluency in Mandarin and Cantonese, has garnered her a strong following with Chinese investors looking for development projects here.  

Whillans also says that, in the face of an uncertain global landscape, New Zealand may be about to see a second wave of offshore capital enter the local property market.

Brendan Keenan, the group’s senior analyst, concurs stating that the flow of wealthy Chinese investors looking to diversify overseas continues to grow despite the equities sell off that started in June which has seen almost 40 per cent wiped in value from the Shanghai Stock Exchange Composite Index.

“Many of our clients were spooked by the Chinese Government’s clumsy response and intervention in the equity markets, which they see as disturbing proof of a command and control economic policy despite this government’s commitment to free markets,” Keenan says.

“The devaluation of the yuan against the dollar in August has also put Chinese investors on edge with fear that further devaluations could be on the cards as China attempts to boost its export sector.

“It was recently reported by Bloomberg that for every percentage point drop against the dollar, approximately US$40 billion [circa NZ$64 billion] in capital will leave China. While it is early days we have noticed a spike in inquiry since June with buyers equally looking to get deals over the line.”

Keenan adds that New Zealand and Australia have both become a lot cheaper for private Chinese investors in the last couple of months particularly compared to the US and Great Britain whose currencies have firmed against the yuan.

He agrees with Ying about continuing Chinese investor interest. “We are now beginning to see larger, listed Chinese development companies looking at Auckland for their next projects. “With fears of an apartment oversupply situation developing in Melbourne and Brisbane, Western Australia officially in a recession and skyrocketing Sydney land prices eroding development margins, Auckland is seen as a good bet and a viable alternative.

“Because of the stronger US dollar, these large Chinese developers are having to re-evaluate their investment strategies, forcing them to diversify out of South East Asia, China and other emerging market economies.

“Those Chinese property companies which borrowed heavily in dollar-denominated debt - attracted by low US interest rates compared with their local-currency debt - are beginning to feel the ‘one-two-punch’ of weaker emerging market currencies and rising US interest rates. “With much of their revenue earned in China and other emerging markets these groups are now aggressively having to look at projects in developed markets to offset the rising cost of servicing their debt.”

Whillans says the economic outlook in Australia and in particular the weaker residential outlook in some of Australia’s capital cities means Australian developers are also giving serious consideration to entering the Auckland marketplace.

“Unlike Australia, where the development industry is controlled by listed giants like LendLease, Mirvac, and Australand (now Frasers Property), New Zealand has been largely dominated by smaller private development companies. These groups together with their billion dollar balance sheets could also be part of the answer to Auckland’s shortage of high-quality, high-density housing,” Whillans says.