Citigroup Inc's property unit plans to increase its investment in the "greater China" real-estate market 10-fold to US$800 million in the next three years as economic growth fuels demand for offices, shops and homes, an executive said.
"We will focus on the eastern part of China to gain from the increasing demand brought by foreign investment inflows in the area," Stephen Coyle, chief investment strategist of Citigroup Property Investors, said in Shanghai yesterday.
The increase applies to "greater China," including Taiwan, Hong Kong and Macau, he said.
Citigroup joins rivals such as Morgan Stanley and Goldman Sachs Group Inc in seeking to tap demand from an economy that grew an average 10 percent for the past three years.
China attracted more than US$60 billion of foreign direct investment last year, with 87 percent going to the coastal Bohai Bay, Pearl River Delta and Yangtze River Delta regions, according to Citigroup.
Citigroup Property Investors will buy office, retail and industrial properties, Coyle said in an interview during a property conference that was held in Shanghai yesterday.
The New York-based unit will also invest in residential projects in "secondary cities" in China where housing prices have more potential to rise, he said.
MEASURES
China's government last month announced a series of measures, including higher taxes and down payments, to cool surging home prices.
Prices in Shenzhen jumped 35 percent from a year earlier in the first quarter, while in Beijing prices climbed 15 percent, according to data from the two city governments.
Citigroup is interested in China's real estate market because the economy's "incredible" growth is raising incomes and driving demand for industrial, retail and office property, Coyle said.
China's economy expanded 10.3 percent from a year earlier in the first quarter, accelerating from 9.9 percent last year.
"Industrial markets in China will be particularly attractive," he said. "China is the manufacturing engine of the world and will continue to be for many years to come."
Class A office yields, meanwhile, are 7 percent in Shanghai, compared with 4.5 percent in the US, 4 percent in London, 3.5 percent to 4 percent in Hong Kong and 3.5 percent in Tokyo, according to Coyle.
The yield is the annual rent expressed as a percentage of the sale price, and Class A is the highest grade.
"Clearly, it is a very high yield for a rapidly growing market and which will likely be the number one or two financial center in Asia within a decade," he said.
Coyle said he expects yields in China to decline.
Citigroup Property Investors, an arm of the world's biggest financial services company, manages more than US$7 billion of real estate assets worldwide on behalf of clients and itself.
The US$800 million investment target is "conservative," said Remy Chan, Shanghai-based head of markets at Jones Lang LaSalle Inc, a US real estate consultant.
TIME NEEDED
Still, as a latecomer to the China market, Citigroup needs "time to get familiar with the domestic market and find the right targets," he said.
Citigroup spent US$50 million to buy a 75 percent stake in Shanghai-based developer Yongxin Group last year, according to a report by real-estate consultant Colliers International.
Coyle declined to comment on individual investments involving China.
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