Hong Kong: US-based lender JPMorgan Chase and Co. plans to invest more than $1 billion (Rs4,230 crore) in Asian real estate over the next three years, hoping to fill a gap as Indian and Chinese developers crave funds and rival investors recoil from property markets.
The investment bank, which has fared better than some Wall Street rivals because of smaller exposure to US subprime mortgage investments, is using its special opportunities group to finance Asian property firms and their projects.
Slowing down: An under construction residential complex in Gurgaon. Housing markets in the New Delhi area and the southern Chinese cities of Guangzhou and Shenzhen dropped as much as 25% in the last year. (Photograph by Rajeev Dabral/Mint)
“It’s a fantastic opportunity for us at a time when a lot of our competitors are scaling down because of difficulties accessing their balance sheet,” the group’s Asia real estate head, Bryan Southergill, said.
Many Chinese and Indian developers are struggling to complete ambitious projects because local banks have clamped down on lending to the construction industry and a stock market slump has closed off equity raising through initial public offerings (IPO).
Foreign investors are also shying away from markets where risks, as well as returns, are traditionally high. But because of a shortage of funds, developers are starting to offer plum deals.
“Last year many private equity players were clamouring for exposure in India and China but it was hard to get in,” Southergill said. “Now, sellers’ expectations have come down and what they’re asking for is much more reasonable, but the private equity and hedge funds have really pulled back and are more cautious.”
In China, the lending clampdown was inspired by a government bent on cooling a market where average home prices have doubled since 2002 and high-end apartments prices have risen much more.
Beijing has also raised interest rates, imposed taxes on capital gains and land appreciation, stopped non-residents from buying apartments and employed a “use it or lose it” policy to deter land speculation. In India, the central bank has raised interest rates and bank reserve ratios and clamped down on developers borrowing offshore.
Housing markets that were booming have slowed, with prices in the New Delhi area and the southern Chinese cities of Guangzhou and Shenzhen dropping as much as 25% in the last year.
Southergill, who worked for the property investment arm at global financial services firm Morgan Stanley before joining JPMorgan, struck a cautious note despite his ambitious spending plans.
“In the next three years we aim to invest north of a billion dollars in this part of the world, if market conditions allow,” Southergill said, adding the investment would be split roughly equally between India and China.
“We’re cautious about equity, aggressive on mezzanine financing, and we’ll take our time during this period of market consolidation to build long-term relationships with companies we’re going to invest with.”
JPMorgan has taken two $50 million equity stakes in Indian IPO-hopefuls Emaar MGF Land Ltd and BPTP Ltd, a developer in the New Delhi region that has also garnered funding from Citigroup Inc. and Merrill Lynch and Co. Inc.
The bank also gave a bridge loan to Bangalore developer Prestige Group and a mezzanine loan for Mumbai-based Lodha Group, but the central bank has since closed off such offshore deals. “In India we’re looking at conservative, preferred-equity type structures,” Southergill said.
In China, JPMorgan gave a pre-IPO bridge loan to Greentown China Holdings Ltd and another to Fineland Real Estate Holdings Co. Ltd, which is still waiting to launch an IPO, as well as a $75 million mezzanine loan for Asia Pacific Land Ltd’s acquisition of a Shanghai building from Hutchison Harbour Ring Ltd.
JPMorgan also planned to open a property investment desk in Japan, Southergill said. But with stock markets gloomy and banks cutting exposure to property across the region, he dismissed the idea that Asian property markets were immune from the global economic downturn.
“Last year people were saying that the global credit crunch wouldn’t affect Asia much, but as the saying goes, when the US sneezes, the world catches a cold,” Southergill said. “The US has got pneumonia right now.”