China’s soft landing
JLL CEO talks about the brilliance of Chinese government's control over economy and no plans for M&As in Korea and Asia Pacific
By Kim Da-ye
For Korean stock traders, China’s real estate market matters more than its domestic counterpart.
The Seoul bourse fluctuates depending on global liquidity, which has been affected by the debt crisis in Europe, the sluggish recovery of the U.S. economy and China’s tight money policies to control inflation and soaring real estate prices.
Investors are anxiously waiting for the signs of Beijing loosening its tight grip on credit that could lead to more investment and consumption by the Chinese and eventually to the injection of liquidity into the global financial market.
Part of that ideal scenario has already begun taking place in real life, according to a real estate expert.
Colin Dyer, the president and CEO of commercial real estate service company Jones Lang LaSalle (JLL), said in an interview with Business Focus that housing prices across China’s 70 cities fell in the last quarter and the government is easing inflation measures ― most recently, the central bank cut banks’ reserve requirements.
“It’s not prediction, it’s a trend,” Dyer said, adding that China’s real estate market will stabilize this year without affecting other parts of the economy.
“The overwhelming thing about the Chinese government is that they manage the economy brilliantly. They’ve got such good control of growth ― in driving growth and holding it back,” he said.
The CEO of the world’s major real estate service firm sees the strong demand in the residential side of the market not going away anytime soon.
He says that the high level of demand for residential properties has been fueled by “real people with real money,” not “hot money or debt.”
On the country’s commercial properties, which JLL has been closely monitoring, Dyer sounds more positive. He says that prices will remain firm because of a low level of construction coupled with high demand in major cities.
Seoul as major investment destination
Seoul was ranked 8th in JLL’s list of top 30 cities for direct commercial real estate investment between 2010 and 2011. An estimated $12 billion invested in Seoul surpasses $10 billion put into Shanghai and Los Angeles each, $8 billion into Beijing and $7 billion apiece into Chicago and Sydney.
Dyer says that Seoul will continue to remain one of the major destinations for commercial real estate investment for several reasons.
Metropolitan Seoul has a massive population of over 23 million, while much wealth ― the International Monetary Fund’s estimate for Korea’s GDP per capita in 2011 is $23,749 ― is concentrated in the capital city.
Seoul also hosts headquarters of global corporations including Samsung Electronics and Hyundai Motor Group.
While those qualities are quite common for cosmopolitan cities, why would foreign investors prefer Seoul to others?
Dyer says that most of the investment into Korea’s commercial properties is made by Koreans, especially large local corporations.
For foreigners sophisticated enough to consider Seoul, the city makes a good part of a diversified portfolio that already includes properties in Shanghai and Singapore.
For additional strengths of Seoul as an investment destination, Dyer lists the solid manufacturing-oriented economy, high-quality labor force, outstanding communication infrastructure and well educated people.
“Hard working people generally drive innovation. Companies like Hyundai and Kia were built by highly educated people,” Dyer says.
In order to attract more foreign direct investment into the city’s properties, the market needs to become more transparent, he pointed out.
Dyer says that Korea sits somewhere between highly transparent and very opaque. The lever of transparency is determined by the availability of open information on pricing and return on investment, the legal system and the levels of bureaucracy and corruption.
“Korea is at the same level as Taiwan and Thailand. Korea is underperforming, given the size of the economy,” Darren Krakowiak, the director of the Korean operation, says.
“Korea should be more like Japan, which is in the transparent category, not the highly transparent. Information on the retail and industrial sectors is still very much controlled by large companies,” he added.
Some of the highly transparent countries include Australia, Hong Kong, Britain, Singapore and Canada.
In the meantime, the innovative trends in Korea’s construction scene could help draw more investment from both Korean conglomerates and multinational firms, Dyer says.
Because Korean companies prefer to own their headquarters and occupy them alone, large buildings were traditionally built for one user. Nowadays modern buildings are designed to cater for tens of different companies with retail space in lower floors and an underground connection to the subway station. Their exteriors have also significantly improved.
“New buildings like Center1 in central Seoul and the IFC in Yeouido are now on par with best buildings in Hong Kong and Singapore,” Krakowiak said.
Dyer said that the modern buildings that meet global standards could influence multinational firms’ decision to have key Asian offices in Seoul
No M&As planned in Korea and Asia Pacific
The Chicago-based Jones Lang LaSalle grew globally through a series of mergers and acquisitions (M&A). JLL is the product of a merger between the London-based Jones Lang Wootton & Sons and LaSalle Partners from the U.S. in 1999.
The company acquired four real estate players in 2006 and went through 15 M&A in 2007. One transaction resulted in its Indian branch becoming the largest real estate firm there, according to JLL’s website. It adds that acquisitions increased the firm’s presence in China and helped it become the leading real estate firm in Germany and the Netherlands.
In 2011, JLL acquired the London-based international property consultancy King Sturge for 197 million pounds ($300 million). King Sturge had over 210 offices and 4,200 staff across 45 countries.
Despite the scale and number of M&A, which may often involve troublesome integration processes and result in unhappy employees, JLL managed to stay among World’s Most Admired Companies compiled by U.S. biweekly Fortune in 2008, 2009 and 2011.
When asked how JLL could remain a good employer, Dyer acknowledges that real estate service firms are all about keeping the talent, and that a similar corporate culture accounts for the most in finding the right firms to buy.
“We pay money to buy people. We don’t want to lose them,” Dyer said.
The CEO lists three basic values JLL looks at ― high ethical standards including honesty; commitment to serve clients’ interest first; and collaborative employees.
How does JLL know that a firm has such qualities? Dyer said that the targets of M&A have long been JLL’s competitors, so JLL knows their corporate culture and people.
After researching the Korean market, JLL found there were no real estate firms that shared a similar corporate culture.
Dyer said that there is no acquisition planned in Korea or across Asia Pacific this year.
“There is no one to buy. We are the pioneer in the real estate service industry. It’s a new sector ― only 20 years old in Asia Pacific. We are creating the market.”
The CEO acknowledged that M&A on global scale pose a great challenge especially for firms with a strong business culture. He said a merger between an American firm and a French entity rarely works well because of different behaviors.
JLL’s strategy for cross-country M&As is staying local and growing local people. Dyer said that employees at overseas branches work and communicate in a local language while the leaders of the acquired firms become key figures at JLL. For instance, when JLL acquired Indonesian property consulting firm Procon, the firm made Procon CEO Lucy Rumantir the chairman of its Indonesian operation, now the largest real estate consultant there.
JLL’s aggressive expansion through M&A may be a good case study for Korean firms whose most important assets are people and are trying to enter overseas markets.
“Let’s say there is a Korean company that tries to become international. If it is successful, where is it going to be in 30 years? The answer is it will be no longer a Korean company. It won’t just have Koreans on the top, it needs to mix,” Dyer said.
“They can’t get there overnight. American companies didn’t become international overnight. The question is, ‘Do you want to start the journey?’”