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By Anjali Athavaley ’14
A group of 32 Columbia Business School real estate students and faculty members headed to Hong Kong and Beijing over spring break, March 16-23, for a deeper look at the Chinese property market.
On the agenda: dim sum, a Peking duck dinner, the Great Wall, and visits with more than a dozen local and international developers and investors. Organizers Scott Meyer ’14, Maria Noy ’14, Karl Chan ’15, and Bria Bailey ’15 put together an extensive itinerary that included meetings with companies ranging from Blackstone, the world’s largest private equity firm, to local players like Swire Properties, one of the largest commercial landlords based in Hong Kong. Faculty members Leanne Lachman and Michael Gilberto accompanied the group. The trip was sponsored by the Jerome A. Chazen Institute of International Business and the Paul Milstein Center for Real Estate.
There was no better time for a student studying real estate to visit China. Population shifts from rural to urban areas are fueling demand for housing, but property prices have been rising so fast that industry-watchers have called the market a bubble. The collapse of property developer Zhejiang Xingrun Real Estate Co. during the week of the trip fueled even more questions about China’s slowing economy. The company said it was unable to pay roughly $600 million worth of loans, highlighting how developers struggle to find capital in the wake of government efforts to cool the property market.
The group kicked off its trip with a visit to residential developer China Vanke, which provided an overview of the property market in Hong Kong. One theme was the Hong Kong government’s intervention in the property market in recent years. Hong Kong had doubled the stamp duty on property transactions last year to cool the market. Vanke said it was expecting prices to decline further in the residential market in 2014. The government has also set a housing target of 470,000 homes over the next ten years. Much of the new supply is expected to be located in the New Territories, the area extending from Kowloon to mainland China.
A site visit with private equity firm Phoenix Property Investors illustrated how bringing a redeveloped building to market in Hong Kong is a complex process. The group received a tour of the Gramercy, a chic building on Caine Street that offers amenities such as a spa, pool, and gym. Redeveloped properties are rare because of the widespread strata title home ownership model in Hong Kong, Phoenix Property Investors said. That means that redoing a building requires buying out 80 to 90 percent of individual condo owners. When the property has hundreds of different owners—some of whom can’t be found—the process can take a while. Indeed, the Gramercy, surrounded by dilapidated buildings, was the only luxury residential building in sight.
Company visits were just part of the agenda in Hong Kong. Students toured the Peak, a mountain on the western half of Hong Kong where some of Hong Kong’s most expensive residential property is located. They trekked to the roughly 112-foot Tian Tan Buddha statue, built in 1993, where they had lunch at a monastery. They also enjoyed street food, such as fish balls and stinky tofu, at the Ladies’ Market and the nightlife in the Lan Kwai Fong district.
Beijing was a vastly different property market, as evidenced by the sprawl of the city and the design and construction of its buildings. Students met with executives from Standard Chartered Bank and real estate services firm Jones Lang LaSalle, where they learned about wholly foreign-owned enterprises. WFOEs are limited liability companies that are popular investment vehicles for foreign companies in China because they allow for more control in business decision making.
Site visits included a tour of the outdoor mall Taikoo Li, located in the Chaoyang district of Beijing, courtesy of Swire Properties. The complex consisted of more than a million square feet of retail. The south side had stores that drive foot traffic, like Uniqlo, while the north side was composed of high-end retailers. Anchor tenants included Miu Miu and Emporio Armani. The developer SOHO China, whose niche is in prime office properties in Beijing and Shanghai, gave the group a tour of Galaxy SOHO, a large office and retail development designed by Zaha Hadid.
The trip was capped off with visits to the Great Wall, Tiananmen Square, and Forbidden City. Students interviewed after their return said major takeaways included the disparity between the rich and the poor in China as well as differences in the construction quality between China and the U.S.—both are causes for concern. Indeed, Hong Kong is attracting more millionaires, but one-fifth of its population is living in poverty, raising questions about affordability.
Overall, the trip provided students the opportunity to witness one of the biggest news stories of the decade up close. Those who pursue real estate as a career may surely find themselves back in China in the near future.
Anjali Athavaley ’14 is a Knight-Bagehot fellow in business and economics journalism at Columbia Graduate School of Journalism. Before she started at Columbia, she wrote about commercial real estate in New York City.