Beijing crackdown threatens to crush China’s love of London property

In 2014, Chinese real estate developer Greenland Group began construction of the tallest residential tower in Western Europe.

A video on the $ 9 billion company website may seem like “Spire London” is complete. A curved glass monolith that soars to 235 meters and competes with the pyramid-shaped skyscrapers that dominate the Canary Wharf skyline in eastern London.

But seven years later, there are no towers yet.

“”[Greenland] We installed a slope for heavy machinery and laid the foundation. But as far as I can remember, there is no activity and no one knows what’s going on, “said David McCooke, Head of Home Development at Johns & Co, a real estate company based across the site.

Greenland is one of the clutches of Chinese real estate developers who rushed to London after the financial crisis as the housing market boomed and relations between Britain and China warmed up.

But like many London real estate projects, the plan has been hit by a slowdown in sales of luxury residential apartments and a Covid-19 pandemic. Currently, there are concerns that regulatory crackdowns in China may end such developers’ interest in the British capital.

Chinese developers are under pressure from the so-called “three red lines.” This is Beijing’s new rule that seeks to curb excessive leverage across the real estate sector by limiting the amount that businesses can borrow.

Evergrande, the world’s most debt-rich developer and a symbol of the enormous debt that has arisen through decades of transformative urbanization in China, has missed the decisive interest deadline for offshore debt and is on the global market. It caused concern throughout. This week, another developer, Fantasia, issued offshore bonds by default.

A real estate consultant near London’s development market was contacted by a UK regulator following a huge crisis, concerned about the risks of transmission in London. “The big question is whether Chinese will limit their investment abroad,” he said. “It will be a pretty big crisis in Britain and elsewhere.”

According to Real Capital Analytics, between 2013 and 2018, buyers from mainland China and Hong Kong poured nearly £ 3.5 billion into London, almost all the cross-border investment flow in London’s land in 2017. Occupied.

This has fallen sharply in the last three years to about one-tenth of that level, but thousands of homes in London are still funded by China. Many of these are unfinished and unsold.

Guangdong-based developer and China’s largest sales country garden will buy a site in Poplar, east London for £ 80m in 2018 and develop about 800 homes for £ 400m. I have a plan. A sign was erected promising an “exclusive collection of luxury homes”, but there are no homes on it yet.

Spire London Construction Site

Greenland paid £ 84m for a plan at Canary Wharf in 2014, but has been braking the Spire London project ever since © Tolga Akmen / FT

Hong Kong-listed developer CC Land, which also owns Guangzhou R & F’s subsidiary R & F Property and the Cheese Greater Tower, paid nearly £ 500 million in 2017 to its site in Nine Elms, southwest London. Is still unfinished.

Guangzhou R & F, which announced a shareholder infusion last month, told the Financial Times that it was “proud” of the progress of construction and sales of Nine Elms, but to analyze the number of apartments sold under the scheme. Refused. As of June, the company violated all three “red lines” in China, which cover indicators such as cash and stocks as a percentage of debt.

CC Land said the Beijing crackdown would not affect its development. “We don’t have a lot of debt and our project is fully funded,” he said.

A vertical bar chart of transaction value (£ m) by origin showing that China's investment in London real estate has stopped

Even without Beijing’s intervention, many Chinese developers face more difficult challenges than expected in London.

“Most of the developers in mainland China I know came to the UK with pretty disastrous consequences,” said the boss of London’s leading homebuilder. “”[They have] I paid a huge amount of money for the land, suffered construction costs, and really struggled to sell. ”

He is one of the many UK developers who said he was comprehensively overpriced by Chinese counterparts in land sales between 2013 and 2018.

“At that point in the market, we almost knew that if we were against Chinese developers, we couldn’t avoid getting the site,” another said.

However, London’s flat market has been sunk since 2014 due to new taxes on foreign buyers and the uncertainty posed by the three general elections and the Brexit referendum. According to real estate firm Savills, luxury condominiums in central London’s most central district are trading 22% cheaper than in the summer of 2014, despite a slight rise last year.

Line chart of central London prime value index showing that London apartment market has fallen by more than one-fifth since 2014

It distorted bright predictions by developers based on land investment. Shanghai-based Greenland paid £ 84m for a plan at Canary Wharf in 2014 and advertised the value of a full spire at £ 800m. However, the developers put a brake on the project in 2018, saying that “London’s housing sector has changed significantly.” The plan was also postponed to address fire safety questions raised following the 2017 Grenfell Tower fire.

China’s investment in London’s development sites and real estate has declined dramatically as challenges have piled up and prices have leveled off. The immediate question now is not whether the Chinese will continue to come, but whether they will leave altogether.

Greenland claims that it has no plans to sell Spire London and intends to “advance development as a high-quality, groundbreaking project in response to ongoing housing demand in London’s Docklands.” I did.

However, the company is considering withdrawing from another London program, a housing development on the premises of an old brewery in Wandsworth, southwest London. According to those who were briefed on the deal, Greenland is in talks with “4-5 potential bidders” and is approaching a deal exchange with one.

According to the company, the sale “depends on London market conditions and the quality of offers received.”

It will also depend on the situation in Beijing, which is 5,000 miles away. According to data from the Beike Research Institute, Greenland violates two of the three “red lines” of loans. The net debt-to-capital ratio is above the 100% cap, but the debt-to-asset ratio, excluding advance payments, is too high at 82%. Developers who exceed the metric have limited ability to take on new debt.

Early regulatory intervention by China has lowered the international ambitions of companies such as HNA and Wanda.

R & F and CC Land were able to purchase the Nine Elms site in 2017 after Dalian Wanda withdrew. The next wave of investors is now facing their own challenges.

Beijing crackdown threatens to crush China’s love of London property Source link Beijing crackdown threatens to crush China’s love of London property

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