china and who's there

[grossreal]

hi all
thought I would post this tread for people that are investing in china and or are looking at that market.
I will post my vested interest at the start I am a 50/50 joing venture partner with a group in china and I am in the middle of what we call double investing they invest here and we invest there.
they invest cash we invest knowledge it is relatively complicated and not for this board nor is it an advertisement for investing as we are not looking at that either at the moment.
there are a coupe of large listed trusts that have opened up investing in china and can list a few if people want to know who the are.
I have lots of different string to my bow and this is but one.
I thought I would post what I see and then people can burn me or post there ideas.
to give a little back ground I did a fare bit of work with Austrade in the late 80's early 90's and saw china then as a big opportunity,
things changed and lost interest and focused on core business,
now I have rekindled that interest and have take that moth balled china jacket out of the draw and put it back on again.
yes this market is very different and yes they have some (to the casual observer)unusual structures ( you maynot like this word as people seem to think its a very nasty word, syndication and unlisted property trust)
this I see will be the new market for joint ventures, it is only very small relative to there market (it would swamp our market and drag every dollar out of it).
To give you a scale of what you are looking here and I will give a very micro small example but will give you the scope or potential for profit.
one company the guang dong construction group co pty is the 4th largest in china it has 35,000 engineers and has 9 uni's that it owns and has a couple of projects that it is currently building that are each in excess of 4 billion each, these are not buildings, these are complete cities and they don't have a superfund, investment fund or even investment plan or club.
their current investing market is so small compared to here.
you have a growing middle class, over what we would call the 500k mark
with disposable income and one child and looking at investing,
this is the market we want to tap.
I will let you know how we go
from a money point of view no out lay for me, just knowledge.
interested in who else is in china and there prospective.
try not to turn it into, got a great deal on a 2br room in shanghai.
nay questions also fire away and if I can't answer will have an answer within a day or so as I am msn with them daily.

 

[Dwayne Singleton]

Hi Grossreal

I have a close association with a Chinese guy in Melbourne.
He recently set up a property development consultancy in Melbourne for Chinese property investors, most of whom are now OZ residents or citizens. I provide his consultancy with town planning advice.

There seems to be an endless stream of clients knocking on his door.

He is really keen on investment in OZ, but not actively pursuing anything in China that I am aware of.

I find the whole subject fascinating so I'm happy to hear more. Feel free to send a private email.

cheers

Dwayne

 

[bent]

Well, I'm here

Hi,

I work for Jones Lang LaSalle in Shanghai.

I'd be happy to meet up with you next time you are over here.

The market is fascinating over here - different in every city ranging from fairly sophisticated in Shanghai to downright 3rd world in other places.

Feels very much like a boom town.

Cheers,
Ben

 

[thefirstbruce]

Gross, as I mentioned somewhere else, I thought you couldn't get property freehold in China. Has that changed recently?

 

[grossreal]

hi Dwayne Singleton
funny this post should pop up but just talking with our guys on china today.and there has been alot of developments in this region.
this is not an advertisement it is to be viewed as a learning and information and will use a hypothetical company or trust and will give a little back ground first and you will understand where and what I am doing.
china does not have listed or unlisted property trust as we do here they have syndication that was approved as of 1 april this year.
so if you set up abc pty ltd here that is a trustee for bcd unit trust ( this is a unlisted trust) and we get 100 like minded investors at 50k each and invest in this trust( this can't be advertised so there is no bcd trust)
bcd 5mil stays in australia now you will need to follow the next very carefully or print out
bcd lends 5 mil to cde pty ltd(chinese company)
cde leverages the 5mil 5 times via deuch bank or similar in china to 25mil
cde take a loan for 125 mil from bank of china or equivalent( def) at 80% gross realisation loan
cde get efg a goverment company to quote to construct at the 80% loan
efg and the bank def are both goverment owned so no money moves
def pays to efg and the site is complete
cde and bcd have paid nothing yet
when complete the end product is re loaned with a lend from def at 3% rate and rent is running at 10% currently plus growth.
after 12 month bcd trust changes to listed trust and purchases end product at a 10% return.
and cycle starts again
size of land is 100,000 acres of land oh and the land is lease hold 70 years and is free to start the project
may need printing off to understand and write down.
my email is [email protected] if your guy wants to send me an email.
we have been told that we will have a project very similar with in 2 months and I will be getting involved in a project very similar to the above and I am allowed to tell you what I am getting involved in.
to give you an indication of the size of some of these projects and this is the first wuxi is the second or third largest city in china and if you look at wuxi and you will find arial views the big square hole thats flat and nothing done on it in the middle of the city the size of sydney is this construction group and they hold the paperwork for it and some one will fill that hole( hope its me) similar to pitt street or george street here in sydney.
most people who have dealt with net worth lending in asia will understand it and this is what this type of project is.

 

[thefirstbruce]

Gross, it is hard to understand with the Chinese pulling in so much cash, why they need foreign investment $ for their cities....especially when you consider that there are so many Chinese trying to invest their money outside China, like in Australia.....

What are your thoughts?

 

[Pete]

Wow, grossreal!

Reading that makes me think I'm in neutral - not even in first gear yet! It is a different world from the average somersoft investor's.

What an awesome project. Thanks for the insight. Sounds like plenty of excitement.

regards,

 

[grossreal]

hi thefirstbruce and bent
bent first if your in shanghai we have a commercial license for investing there and will be there in two months there has just been ainvestment seminar upo there and we had two of our people there no feedback yet but thats not unusual and will meet up soon have a read of the post I put up and we are licenced in china to allow the investments.
second
thefirstbruce
with regard to your question it is relatively difficult to answer because you do need to understand the market(hell and I'm learning) but the goverment wants investor to invest in the country it was the case that companies could invest in them selves but they cut that out then they tried trusts and losts lots of money so then and is still the case that you must have a networth investor outside the country this is a very simplistic version and for people investing in china don't burn me for it.
with regard to chinese investing out side there market is why we are in the best position
1. security
2. closeness
3. familiarity with there community
4. cheap to buy high quality product
remember that when you get to these higher levels you are dealing with the sharpest pencils in the pack and they are sharp( and I like that enviroment)
so I do deals with these people that can make things happen in there market and I put my group together in mine.
simple but I find very effective.

 

[thefirstbruce]

I am not trying to be overcynical here Gross, just trying to get a concrete grip on the situation.

Of course, the simplest way to read what is happening, is that the sharp Chinese are keen to get their capital out of China, and maybe even themselves at some later stage. Why they might be motivated to invest outside of China so keenly is because they understand the risk of future instability within the country. Gee, even the Chinese Govt parks the bulk of its extraordinary wealth offshore in US bonds, rather then reinvesting it back into local infrastructure.......

Hence, anyone from outside seeking to invest inside China would definitely be wanting to consider that risk built into their return, and how does one go about calculating it?????

OTOH, maybe the smart Chinese are just trying to do what we all are, and spread their personal capital across various asset classes and currencies in reasonably stable economies. One might have thought the sharpest pencils would have done a study of Macquarie Infrastructure......and tried to emulate that....

Nevertheless, it has to be asked if one can only get 3-4% capital gains in Oz property at the moment, and highly leveraged govt sponsored high returns within China, why the smart Chinese are so keen to move money now...

BTW gross, out of interest, what sort of property are the Chinese interested in buying here? Obviously, you stand to make a lot of money in agent's fees I imagine....just as anyone did who was involved with the Japanese in the 70s.... The reason I ask is that if the Chinese are going to favour Oz property, then I suppose all the talk going on at Somersoft about supply and demand needs to factor in a few trilion in demand from China :/

 

[grossreal]

hi thefirstbruce
couple of things.
1. the internal chinese do want to diversify and hence they are buying here and across the world
2. yes they do want to get out of china at some stage
as they will have some large cash reserves as some Australians will and they also want the same aim.
not sure of the stability issue i am looking at off shoring my investments but thats not because I think the Australian goverment is instable.
3. they invest in us bonds because they have to invest in some thing and they are not allowed under chinese rules to invest in themselves.
4. maqc is already in china in a big way and they would not be even classed as small there and macq for me is not a good example as macq takes a unlisted and turns into a listed and then invests, I don't invest in macq trusts.
and the question is not easy to answer but from me I see it as they can't invest because they are not allowed to.
hence a unlisted Australian trust which can be invested in by any one and can reinvest in china.
long way around but does the same.
at the end of the day people must decide this is the fastest growing economy currently in the world and do I want a piece of it.
I see it this way
1 if i don't have to put any money there and my money is here put still is networth lent from here.
2. I don't have to pay any money out apart from my air fare to get the deal across the line.
3. I get a profit margin of 45% of gross resale value and I'm backed by a goverment dept.
4.the project is 100% lent against by the same goverment lender
5. do I have a problem
6. no
if at the end of the project and I have 50% of a suburb of say 3000 houses that are all rented to a goverment dept and I haven't paid anything for it and my money is still here and it been 12 month and now i can sell off this listed trust that has 1500 rented properties.
do I still have a problem
no
an acre has under aust rules 4 houses and thats not units ( and this will have units) but thats 400,000 houses so I missed a couple of 0 on the above example.

 

[kph]

What do they want to buy ???
Whatever FIRB will let them buy, including vacant land, 50% of a new development, commercial, etc etc.
If they want established residential then the have to get their TR or PR first, then its open slather.
How to get TR ?? start or buy a chinese restaurant, start a business doing property development.
This is a great country......everyones welcome ( but bring your moneybags with you )

kp

 

[grossreal]

hi pete
I like these projects and this is not the largest.
as for neutral this is not the case its just that you haven't found the high gear and when you do you must also find reverse so you run with a runner and pull back on a slower project.
oh and this unlisted trust will not be advertised for investors when it changes to a listed trust here as asx is to small an exchange.
sorry about that.

 

[thefirstbruce]

I see it this way
1 if i don't have to put any money there and my money is here put still is networth lent from here.
2. I don't have to pay any money out apart from my air fare to get the deal across the line.
3. I get a profit margin of 45% of gross resale value and I'm backed by a goverment dept.
4.the project is 100% lent against by the same goverment lender
5. do I have a problem
6. no
if at the end of the project and I have 50% of a suburb of say 3000 houses that are all rented to a goverment dept and I haven't paid anything for it and my money is still here and it been 12 month and now i can sell off this listed trust that has 1500 rented properties.
do I still have a problem
no
an acre has under aust rules 4 houses and thats not units ( and this will have units) but thats 400,000 houses so I missed a couple of 0 on the above example.

OK Gross, trying to stay with you on this....(you and your bloody pigeon english typing) And you are a Pom to boot....


So who do you think will be interested in buying the listed trust of 1500 rented properties? OS pension and super funds? Wouldn't China be too high risk for them?

 

[kph]

Gross you are up late !
All those numbers must be giving you insomnia......

 

[grossreal]

hi kp
yes up to late I think
and off soon.
but thefirstbruce
super fund and most of the large investors will only invest in listed trust and can't in unlisted trusts
as for risk no a listed trust works on return not risk who has asked macq asia2 trust whats there risk evaluation or bb equity trust again before I invest can you tell me your risk evaluation, sorry its not an issue for a listed fund and never has been
its return that is looked at and the exposure to a market.
as for investing here its relatively easy what you want to do is invest in other markets with minimum exposure to loss.
sorry about being the pom but most times I come to the table with regards to lending or investing there is also another pom sat there so I don't feel out of place.
also as for the pigeon english this is because I am used to trying to converse across a few different cultures that don't speak english write it or for some understand it but can get the drift and work from there.
china is high risk for some one to fly there and think they can invest.
but so is kingx here in sydney if you walk down the street with 1000 dollars asking where you can invest this money
whats the difference
for me nothing.
put if you jv with a person here, sri lanka or china then you mitigate your exposure.
what I am doing is mirroring my current system and using it there and for me it works here so will work there.
and as I did say this is not an advertisement so I am not asking people to invest this is info only.

 

[Rolf Latham]

Looks interesting

My number one concern would be sovereign risk, as it is in most places where the rules for the rich are different to the rules of the "normal" people.

ta
rolf

 

[thefirstbruce]

thanks for your patient explanations Gross. BTW, wasn't chucking off at you being a POM per se, just the paradox of your typed english and that you are english...

Yes, it does seem interesting, and I admire your capacity to understand and work it. And I agree when there's lots of cash around and things are happening quickly, and govt regulations are rubbery, then that surely is a great time to be making huge returns...

So what do you expect the final return to be for anyone JVing with you, and over what time period?
You mentioned 48% of gross.

 

[grossreal]

hi all
you must remember I'm a duck you have to be to deal in the markets I deal in.
but returns are interesting as they have not worked them out but they are talking min 40% range as they are supplying everything money, build, land.
my job will come latter and thats the flogging section( now thats when the dealing comes in).
as for sovereign risk then money will stay in the trust here for 12 months with a return to come back to the trust.
the land is to big for one trust so will be a group of trusts as a roll out system wuxi 1 wuxi 2 wuxi 3 etc this is not new it is already done this way and the investors for wuxi 1 will buy into wuxi 2 and so on.
the setup of the trusts is here so I have control.
oh I forgot to say this is my little baby and a few other like minded investors.
any questions fire away and as long as they are not how do I invest or can I put this amount in.
then I can answer them.
my guy that puts the paperwork together for these deals doesn't even know about it but he isn't on any of these boards and is in london at the moment on another deal.
as you can see I do the deal and then let the boys in the back room do the paperwork.

 

[Glebe]

And here's Wuxi

 

[grossreal]

hi glebe
It was an example
I am looking at guagdong with my first flurry into this market
but wuxi is the third largest, industrial area or city in china, when you go to dick smiths or strathfield radios and you pick up a radio. tv. plasma or any electronic item and its made in china its come from wuxi
size of about 3 sydneys and population of about twice Australia.
will try and get a scan of the wuxi design so you can see what is planned.
if you look at there web site from glebe
you will see very soon a very diferent type of web site for some of these cities put together buy some designers here can't up load as they are to big a file will ask if its ok to post a link to there site.they are in china at the moment and won't be back until end of this month