ANALYSIS-China’s real estate problems involve prestigious global projects

By Marc Jones and Tommy Wilkes

LONDON, October 31 (Reuters)Problems in China’s real estate sector could cause problems for high-profile mega-projects in London, New York, Sydney and other major cities as developers behind them scramble for money.

While China Evergrande Group 3333.HK struggles dominated the crisis, the risk to the multi-billion dollar global real estate markets comes from some of its rivals who have spent the past decade competing to build ever taller and grander skyscrapers.

Greenland Holdings, based in Shanghai 0337.HK, which crosses as many “red lines” of Chinese debt as Evergrande, has just built Sydney’s tallest residential tower, intends to do the same in London, and has billions of dollars in projects in Brooklyn, Los Angeles, Paris and Toronto.

The developer says it remains committed to its flagship constructions, including its long-delayed 235-meter-high Spire London tower, but it brought part of another major London site to market earlier in the year and other companies also offer sale panels.

Evergrande and Kaisa Group 1638.HK, which was the first Chinese real estate company to default in 2015, are both trying to sell Hong Kong buildings to find the cash they desperately need. , while Oceanwide Holdings 0715.HK just had what was supposed to be San Francisco’s tallest tower seized by disgruntled creditors.

“I suspect, as with everything, that if you run into liquidity issues, you start looking to sell your investment properties,” said Omotunde Lawal, head of emerging market corporate debt at asset manager Barings. , which owns some Chinese real estate companies. obligations.

As many Chinese companies have paid too much for top foreign sites in the race to secure them, the question is who will buy them, Lawal added. “It’s probably unlikely that they’ll get paid, so I think it depends on how desperate they are.”

SIGNIFICANT ASSET SALES

Guangzhou R&F Properties 2777.HK is another big company under consideration after needing an emergency cash injection this month. It has two giant unfinished developments in London, including one with a dozen skyscrapers beside the River Thames, as well as numerous constructions in Australia, Canada and the United States.

A spokesperson for R&F in London said it remained “fully committed” to all of its UK projects.

But with nearly $ 8 billion in debt to be repaid over the next 12 months, only $ 2 billion in available cash and sales down nearly 30% year-on-year last month, major rating agencies say that they will have to cash in tokens.

“R&F’s ability to manage its short-term debt maturities will depend on the execution of significant asset sales,” S&P said, predicting that buildings, hotels and various project stakes could all be sold. Fitch estimates that R&F has 836 billion yuan ($ 130 billion) in assets that could potentially be sold.

R&F, Greenland, Evergrande and Kaisa all declined to comment further on their finances. Oceanwide said last week it was “actively discussing” the status of its San Francisco project with the creditors involved.

FREQUENCY OF EXPENDITURE

Chinese developers embarked on a massive international spending spree between 2013 and 2018, but the madness has abruptly abated since, as Beijing moved to cut excessive corporate debt.

After investing more than £ 28bn in London projects in 2018, they spent £ 1.5bn in the first half of 2021, the lowest amount since 2012, according to data from Real Capital Analytics.

Figures from Knight Frank realtors paint a similar picture in Australia, New York and other major cities in North America, where Greenland, R&F and other big companies including Country Garden 2007.HK, Poly Property 0119.HK and China Vanke 000002.SZ also spent tens of billions of dollars a year.

Stephanie Hyde, UK managing director of real estate firm Jones Lang LaSalle, which markets R&F in London and another company called Xinyuan which has just narrowly avoided the default, told Reuters she was unaware of any Chinese company looking to sell due to strains back in China.

If they did decide to sell, they would likely find buyers quite quickly, she added, due to the flood of international investment money currently flowing in global property markets like London, where prices are now at. a record high.

Chris Gore, director of real estate firm Avison Young in central London, said he was also unaware of sudden plans to sell, but pressure would increase on Chinese companies if the domestic crisis continued .

“If they needed to sell and could sell for a profit, then I think they would just sell,” Gore said. “It wouldn’t be a problem if a few wanted to sell, but if they all suddenly wanted to quit at the same time, they couldn’t.”

($ 1 = 0.7263 pounds)

($ 1 = 6.4050 Chinese yuan renminbi)

Chinese real estate stocks collapse https://tmsnrt.rs/3Cwknfh

Monthly land sales in mainland China (billion yuan) https://tmsnrt.rs/3uGApQv

China’s Most Indebted Real Estate Companieshttps: //tmsnrt.rs/3u2Onfv

(Additional report by Clare Jim in Hong Kong; Editing by David Evans)

(([email protected]; +44 (0) 20 7513 4042; Reuters messaging: [email protected] Twitter @marcjonesrtrs))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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