Chinese developers remain a key component of the growth strategy for one of Australia’s biggest building companies, Multiplex, despite fears of a slowdown in activity due to tight local credit conditions and strict controls on capital outflows from China.
Over the past five years, Chinese developers have descended on Australia, helping to spark exponential growth in this country’s construction sector.
China-backed companies such as Greenland Group, Dalian Wanda Group, Greaton, Longton Property Group and Country Garden have collectively put together an impressive track record of project delivery, shaking up residential apartment markets across Australia’s eastern seaboard.
In 2013, just 11 per cent of all development site sales in Australia were to China-backed firms, according to data released by Knight Frank.
Last year, that share rose to 33 per cent, collectively totalling $2.02 billion.
While that was a reduction from the 38 per cent share of transactions recorded in 2016, the Knight Frank data is nonetheless indicative of the rapid growth and substantial impact that has occurred.
As a result, Chinese developers have become an increasingly important growth driver for local construction companies, according to Multiplex Victoria regional director Frank McMahon.
Mr McMahon told Australia China Business Review the company had put in place a strategy about five years ago to target Chinese companies interested in expanding to Australia.
“Research was telling us where the weight of capital around the world was sitting, and it showed that there was at that time a large number of Chinese development groups within China looking to expand their business in other countries, and Australia ticked a lot of their boxes when it came to decision making,” Mr McMahon said.
“The strategy was predominantly to introduce a sound business on the ground in Australia, which was very strong in delivery with a track record of 50-plus years of experience and a very safe pair of hands.”
Mr McMahon said the early stages of the strategy were to educate those interested in expanding to Australia on local construction, contracting and procurement processes, in the context of Multiplex’s strong track record of delivery.
“They had little experience in contracting within Australia, so that was very beneficial for them to actually hear from a contractor directly,” said Mr McMahon, who travelled to China around eight times per year when initiating the strategy.
“But even more so, we were showing a lot of respect, and doing business with China is all about trust.
“The fact that we were going to them in their homeland and meeting them in their cities certainly went a long way in the trust line.”
Multiplex’s China engagement strategy is paying off, with Mr McMahon saying the company’s research showed Australian project acquisition and development activity had grown from around 12 per cent per year to peak at 42 per cent over the past five years.
Some of the biggest jobs on its books, which in 2016-17 comprised a development pipeline worth $5.1 billion, aaccording to the HIA-Core Logic Construction 100, were now coming from Chinese developers, he said.
In Victoria, Multiplex recently completed Lighthouse, a $170 million, 67-level tower for Hengyi Pacific and Sixth Grange, which was named the best high-rise residential project in Australia at the 2018 Asia Pacific Property Awards.
Multiplex also recently finished work on the $340 million EQ Tower for ICD Property and Sino-Ocean Land, a 63-level building containing 633 apartments.
Works under way by Multiplex for Chinese firms include the first stage of Queens Place, a $1 billion vertical community located on Melbourne’s Flagstaff Hill, which is being developed by 3L Alliance, as well as Swanston Central, a 72-level, 1,039 apartment tower being developed by Hengyi Pacific.
Multiplex is also building the $1 billion Jewel development on the Gold Coast, a three-tower residential precinct, once feared to have been derailed by China’s capital outflow restrictions.
The project’s original developers, Wanda Group and China Ridong, exited the Jewel project earlier this year, selling it to the Australian subsidiary of Yuhu Group in the wake of the Chinese government’s restrictions on the types of overseas projects firms could finance.
While the Jewel experience sent shudders through the market, raising fears the Chinese-led development boom could be coming to an end, Mr McMahon remained confident there was further to run.
“Without doubt there is a slowing in activity, but what we are seeing is that the number of Chinese groups that have now got a track record in Australia, and have delivered projects, they are recycling their capital or their profits back into the business that is now established here in the Australian market,” Mr McMahon said.
“They are not repatriating back to China, because once the money enters China, it’s very difficult to excise that, given the restrictions on the outflows.
“Recent market entrants have their challenges, but we have done extremely well to partner with what I would deem to be blue-chip groups.
“They are sophisticated, they have established their special purpose vehicles, they have listed either in Singapore or Hong Kong, their capital has exited China, and they may have been working on that for the last number of years, and now they are able to actually invest in property within the Australian market.”
On the other side of the country, Western Australia’s capital city, Perth, has not yet experienced high levels of activity by Chinese developers.
Recently released Foreign Investment Review Board data showed that just 5 per cent of foreign property purchases were made in WA in 2016-17, indicating the state was not appearing on the radar for Chinese developers.
Nevertheless, Multiplex WA regional director Chris Palandri said inquiry from Chinese developers had been increasing around 24 months ago, as property markets in Sydney and Melbourne approached the peak of their respective price cycles.
“But that probably happened concurrent with the Chinese restrictions on capital outflows taking place, so the developers started to step out of the market,” Mr Palandri said.
“While we were getting inquiry, that inquiry seems to have dropped off in the last 12 to 18 months.”
Chinese developers active in WA include Far East Consortium, the Hong Kong-headquartered global development group responsible for bringing the Ritz-Carlton luxury hotel chain back to the Australian market, and Zone Q Investments, the Australian arm of JiaHe JianAn Investment Group, one of Shenzhen’s largest property players.
Along with the Ritz-Carlton and The Towers, Far East is also advancing plans for four other major developments in Perth’s CBD, comprising apartments, hotels and student accommodation.
Zone Q initially arrived in WA with a $100 million apartment project in South Perth, which was completed last year, while plans for an additional two towers in near-city locations were derailed by patchy market conditions.
While Zone Q has made headlines recently with commercial property purchases, spending around $250 million on assets in Perth, Melbourne and Sydney, industry sources suggest it is preparing to return to the WA apartment market with a redesigned plan for its second South Perth tower.
Another China-backed developer, 3 Oceans Property, remains mired in the approvals process for a two-tower, $500 million hotel and residential plan in the beachside suburb of Scarborough, which Multiplex is in line to construct.
Mr Palandri said while Chinese developers had not arrived in numbers in WA like they had on the east coast, they were nonetheless providing a substantial boost to the local construction sector.
“They are a really important part of the market, because you’re not seeing other local developers undertake developments of that scale,” Mr Palandri said.
“It’s a really important thing for the market in terms of jobs and the development of Western Australia that these sorts of projects get off the ground.
“With the Ritz-Carlton at Elizabeth Quay, and 3 Oceans developing the tower and the apartments as well as the hotel and convention centre at Scarborough Beach, they are massive game-changers for the state, and assets that we haven’t seen the likes of in Western Australia before.”
Mr Palandri said Far East’s and 3 Oceans’ projects had the potential to become catalysts for more Chinese activity in WA, particularly if east coast development sites became too expensive for viable development.
“I’d like to think that the residential market will continue to improve in Western Australia, and that feels like it’s happening at the moment,” Mr Palandri said.
“It feels to me like the residential market in the eastern seaboard is coming off, particularly in Sydney and Melbourne at the moment, and perhaps that would start to garner some interest in Western Australia from Chinese developers, and others.”
Outside of Australia, Multiplex has been increasing its presence in other markets, most notably India, the Middle East, the United Kingdom and Canada.
Multiplex’s parent company, global property investment giant Brookfield Asset Management, has also been focusing on efforts to expand its China presence, however, that does not include any plans to enter the China construction market.
Instead, Mr Palandri said Multiplex would continue to source building materials and fixtures from Chinese manufacturers, in order to realise cost efficiency and quality advantages over its competitors in the Australian market.
“The China construction market is very well established, and they have quite strong construction companies, and of course some of them have got investment in construction companies in Australia, John Holland being the most obvious one,” Mr Palandri said.
“Multiplex has no intention at all of expanding into China, we are pretty fixed at the moment on the construction markets that are in Australia, India, the Middle East, Europe, primarily being the UK, and Toronto in Canada, that’s pretty much our footprint at the moment.
“Given how strong the construction market is in China and given how complicated it would be for a company like Multiplex to stroll into China and start building buildings, that doesn’t fit into our strategy.”