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Blackstone Makes Big Move into Chinese Housing

Blackstone, the US private equity group, has made its first significant investment in the booming Chinese housing market after agreeing to a deal with one of Hong Kong’s largest property developers to build luxury apartments in the country.

Shanghai
Photo by: Cory Doctorow
Shanghai

Blackstone has agreed to back the development by Great Eagle of more than 1,000 new homes in Dalian in Liaoning, a coastal city and port in northern China. The scheme is also set to include more than 400 hotel rooms, and is expected to be built in several stages.

Nicknamed the “Hong Kong of northern China”, Dalian is an important trading and financial centre. The investment comes during an unprecedented boom in housing prices in China, with analysts fearing that recent record gains could fuel an unsustainable and debt-fuelled asset bubble.

Research from DTZ, the property consultancy, suggests that housing in mainland China remains affordable in the long term, and it forecasts moderate house price growth. There has, however, been a tightening of policy on speculative property development and investment, although the market has yet to be checked.

The deal is seen by market commentators as being in line with Blackstone’s strategy of focusing on investments in developing nations, with a particular interest in the past year in China and India. Blackstone declined to comment and Great Eagle was not available to answer questions.

Blackstone, which has already made a number of investments in Chinese companies, has said in the past that China’s rapid economic growth and low valuations promised good returns, with wage growth and urbanization to underpin values.

Chinese house price growth has exceeded inflation over the past decade, in particular in first-tier cities where recent price growth has been driven by demand from investors.

The Hong Kong market is es­pecially buoyant. Simon Smith, director of Savills, the estate agency, said average town-house prices in Hong Kong’s upmarket Peak district had recently surged more than 78 percent above a 1997 high. “An historical high of HK$60,215 per sq ft was paid for a house ... on the Peak in May 2010,” he said.

Great Eagle said in its last set of results that it would invite joint venture investors to participate in the Dalian project, which has a gross developable floor area of 3m sq ft, with development to start this year.