Perennial Real Estate, a company established by the former head of the shopping mall business of CapitaLand, plans to launch property funds that will acquire malls in Singapore and China to tap the growing consumer demand in the region.
Mr. Pua Seck Guan, who left CapitaLand in 2008, is returning to the property fund management scene, drawing on his experience in helping build the regional shopping mall business of the Singapore developer and floating off assets through real estate investment trusts (REITs).
Perennial has just closed a Chinese shopping mall fund, amounting to 1.2 billion yuan (S$246 million), aimed at Chinese investors and has also started pre-marketing a similar fund intended for international investors. According to Mr. Pua, chief executive officer of Perennial, a large Chinese retailer, Beijing Hualian Group, is a cornerstone investor in the yuan-denominated fund.
“Particularly in China, there is a huge amount of opportunity. There is no shortage in the pipeline (and) we can still buy malls at good valuations,” Mr. Pua said in an interview.
He understated risks of a bubble in Chinese retail property, noting that it was likely to purchase malls in Beijing for 12,000 yuan psm to 13,000 yuan psm, compared with prices for residences outside the city centre which is around 20,000 yuan psm.
Retail sales in China are also growing at a clip of more than 15 percent per year, he added.
According to Michael Kerley, a fund manager at Henderson Global Investors, concerns about real estate price bubbles in China were overstated, noting the high savings rates, robust GDP growth and rural- to-urban migration in the country.
“If property prices go up 20 percent in London, that’s a multiple of 5 times GDP. When they go up 20 percent in China, it is only a 1.5 times multiple of GDP,” said Mr. Kerley.
Like CapitaLand and other property developers that have diversified into fund management, Perennial is directly involved in the management and design of the malls. In China alone, the company employs around 450 people directly or through its partners.
“You need a platform to demonstrate you know the local market…We have anchor tenants who will follow us, so we know what kind of rentals we can achieve. We are not the kind of fund manager who plucks numbers from the air,” said Mr. Pua.
Once these Chinese malls, which the Perennial funds invest in, develop a track record and are able to deliver steady rental returns, they will be divested to Shenzhen-listed Beijing Hualian Department Store.
As for Singapore, Mr. Pua said that Perennial hopes to raise a fund of around S$300 million to S$400 million that will invest in underperforming malls and will develop new projects.
Widely credited for building CapitaLand’s mall business, Mr. Pua resigned from South-east Asia’s biggest developer in September 2008, sparking a seven percent decline in the share price of the firm amid the already uncertain market conditions, which caused Singapore’s benchmark index to drop 3.5 percent.
Besides Singapore and China, Perennial, whose management includes several former CapitaLand executives, is also active in India, where it advises real estate giant DLF on its retail business.