A Good Time for Investors to Look at China, ZK Group Leader Tells MIT/CRE
April 5, 2006
Growing very rapidly, China presents both significant challenges and exciting opportunities for real estate investors and developers, Hua Cai Bian, chairman of Zhongkai Group (ZK Group) told a group of MIT Center for Real Estate (MIT/CRE) faculty, students and guests at the MIT Museum on April 5. Bian was the featured speaker and guest of honor at a dinner kicking off the Center’s 2006 annual meeting. It was the first time he had visited MIT since ZK Group became a partner with the MIT/CRE last year.
Painting a vivid picture of China’s burgeoning economy, Bian, who spoke through an interpreter, highlighted how his company has paralleled that economic explosion, growing rapidly since it was founded in 1994. Today, ZK Group has 32 subsidiaries in nine Chinese cities including Shanghai, Hangzhou, Zhengzhou, Haikou, Nanchang, and Chongqing. The company is engaged in both real estate and high technology development. Currently the company is engaged in 16 major residential development and mixed use projects.
A pioneer in real estate innovations, ZK has set a standard among Chinese real estate companies, winning awards for the quality of its work and its use of new technologies, materials and construction methods. ZK Group was the first Chinese developer to employ such innovations as high level central air conditioning and an ecological lake which improved the environment for the residential community where it was incorporated into the design, Bian said. While noting that “We use technology and innovation to gain a competitive advantage,” he was quick to add that, “Our mission is to share our success and wisdom with society.”
Bian announced that ZK has created a subsidiary, the ZK Development Group, to specialize in joint ventures with both domestic and foreign enterprises. And he expressed optimism about the future of development in China, noting that the country’s macro economy is both healthy and focused on sustainable growth.
Three Reasons for Real Professionals to Pay Attention
Bian said there are three compelling reasons why real estate professionals should be watching China. All are closely linked to the country’s phenomenal growth.
First, the purchasing power of the average Chinese citizen has been expanding at a nine percent per annum rate since the turn of the century. “Average income has increased from $6,800 in 2001 to more than $10,000 in 2005,” he said, and it is projected to continue growing rapidly in the future.
Second, there is a tremendous demand for urban products. China’s 2005 urban population of more than 550 million is swelling at an unprecedented rate. By 2020, Bian said, there will be a demand for some 10 billion square meters of new housing in China’s metropolitan areas.
Third, the Chinese government has set significant new standards for improvement of the urban environment by 2020. There will be very significant demand, he said, not only for more housing space, but for space of substantially better quality. The nation has an annual need for a whopping billion square meters of new space, he said. Only about 400 million square meters of that need is currently being met. So there is significant demand for new real estate, as well as government support for its development.
However, Bian cautioned that there are significant factors limiting the ability of foreign developers to move into China. For instance, he said, “Currently there are only limited financial products for real estate development. The major source of funding for developers is banks, but banks have begun to tighten up on their lending practices.” Alternatives such as real estate trusts and partnerships are needed, he said, adding that this need should present opportunities for entrepreneurs.
Differences in regulation also pose an impediment to foreign companies. “It remains very difficult for foreign investors to enter the Chinese market,” he said. “The approval process is a long and tedious one.”
That problem is compounded by the fact that “Foreign investors have difficulty understanding Chinese market dynamics,” he added. And, he said, cultural differences remain an impediment. Before they will be very successful in China, he observed, most foreign investors have a great deal to learn about Chinese regulation, tax structures and regulatory practices.
However, Bian said that China needs foreign investment and development. There is enormous pressure for more real estate to meet the country’s insatiable demand. “I still believe that, strategically, this is a good time for investors to think about getting into China,” he concluded.
Bian closed his remarks by acknowledging the value ZK Group’s affiliation with the MIT/CRE. He said the Center has helped ZK Group to better understand how the real estate market works in the United States and cited a number of ways in which the Center has assisted ZK Group in China. By the same token, he said, his company has aided the MIT/CRE in gaining exposure in China and has generated opportunities for the Center to be increasingly engaged in research there.
