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MIPIM Asia 2011 – Investing in the future – a dragon spreads its wings

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‘The insurance companies are now flapping their wings – once they take off they will be real dragons’.

That was the summary statement of Edward Cheung, CEO of Greater China DTZ at the end of the Mipim Asia conference on investment in China which took in issues such as the direction of investment in line with the 12th Five Year Plan.

That 12th Five Year Plan is an important element affecting the real estate picture – Rong Ren, CEO of Harvest Capital Partners¬†believes the private sector must lead, and investment in shopping centres is sensible given its content, while the affordable housing element is an ‘emotional topic’ given its huge targets. ‘The financial burden is massive and land supply is going to be a problem’, he said. ‘This programme has to be completed in a more thorough, thoughtful way’.

Insurance companies may be risk-averse and quite bureaucratic, not the most compatible of features in a fast moving real estate atmosphere like China. But their liabilities are very long term, so they need to find assets and tend to love real estate as a result, said Richard Yue, CEO and CIO of Arch Capital Management.

But Chinese investors face different issues when they go to overseas markets. One Chinese investor bought 300 km2 in Iceland, a deal which garnered a huge amount of coverage Рthe press failing to understand the rationale behind it. Was it to to invest $150m to create a resort and golf course in the wastelands of the island or was it for Beijing to gain control of the Transatlantic shipping channel when the polar ice caps recede, wondered Stuart Jackson, head of real estate at InfraRed Capital Partner.

China does not want a flood of insurance money risking further inflationary pressures, said Rong Ren, CEO of Harvest Capital Partners. Yue agreed, saying that China needs to develop its capital markets and REITS are still in their infancy, outside of Hong Kong and Singapore. Much of the wealth is coming into the second and third tier cities, said Yue, where the industries are and since the government is constraining residential, retail presents a big opportunity.

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