Thu. May 19th, 2022

In 2014, Chinese real estate developer Greenland Group set out to build Western Europe’s tallest residential tower.

A $ 9 billion video. The company’s website shows “Spire London” as it may look when finished: a monolith of curved glass that shoots up to 235 meters and fights the pyramid-shaped skyscraper that dominates the Canary Wharf skyline in east London.

But seven years later, there is still no tower.

“[Greenland] has put the ramps into heavy machinery and laid the foundation. But there has been no activity for as long as I can remember, and no one can tell you what’s going on, ”said David McCooke, head of housing development at real estate agent Johns & Co, which is based across the site.

Greenland is among a link of Chinese real estate developers who rushed to London after the financial crisis when the housing market boomed and relations between Britain and China warmed up.

But like many real estate projects in London, its plans have been hit by a slowdown in luxury home sales and the Covid-19 pandemic. There are now concerns that a regulatory crash in China could stop such developers’ interest in the UK capital.

Chinese developers have come under pressure from the so-called “three red lines” -new rules from Beijing, which seek to curb excessive leverage across the real estate sector by limiting the amount companies can borrow.

Column list of total liabilities (Rmb tn) showing China Evergrande's towering debt

Evergrande, the world’s most indebted developer and a symbol of the huge commitments made through decades of transformative urbanization in China, sparked fears across global markets as it missed a crucial interest rate cut on its offshore debt. This week, another developer, Fantasia, has defaulted on an offshore bond.

A real estate adviser close to London’s development market was contacted in the wake of the Evergrande crisis by a British regulator concerned about the risk of infection in London. “The big question is whether the Chinese will limit investment abroad,” he said. “It would be a pretty big crisis in the UK and elsewhere.”

Between 2013 and 2018, buyers from mainland China and Hong Kong poured in close to $ 3.5 billion. Pound into London, which accounted for almost the entire flow of cross-border investment in the city’s land in 2017, according to Real Capital Analytics.

It has fallen sharply in the last three years to about a tenth of that level, but thousands of homes in London are still being bankrolled from China. Many of these are unfinished and unsold.

Country Garden, a Guangdong-based developer and the largest in China by sale, bought a site in Poplar, east London, for a reported £ 80m in 2018 with plans to set up a £ 400m development on almost 800 homes. Hoardings have been erected that promise an “exclusive collection of luxury homes”, but no homes have yet been shown above them.

Construction site Spire London

Greenland paid £ 84 million for its land in Canary Wharf in 2014, but has since put the brakes on the Spire London project © Tolga Akmen / FT

R&F Properties, a subsidiary of Guangzhou R&F, and Hong Kong-listed developer CC Land, which also owns the “Cheesegrater” tower, paid close to £ 500m. In 2017 for a site in Nine Elms, southwest of London, which also remains unfinished.

Guangzhou R&F, which announced a shareholder grant last month, told the Financial Times it was “proud” of the construction and sales growth at Nine Elms, but declined to comment on how many apartments it had sold under the scheme. In June, the company was in violation of all three of China’s “red lines”, which cover measurements such as cash and equity as a share of debt.

CC Land said Beijing’s collapse would have no impact on its development. “We are not heavily in debt and our projects are fully funded,” it said.

Column Deal value by origin (£ m) showing Chinese investment in the London property has stalled

Even without Beijing’s intervention, many Chinese developers have faced tougher-than-expected challenges in London.

“Most Chinese developers on the mainland, I am aware, who have come to the UK, have had rather disastrous results,” said the boss of a major London homebuilder. “[They have] paid an awful lot for the land, struggled with construction costs and really struggled with sales. ”

He is one of a number of UK developers who have described being extensively outbid by Chinese colleagues in land sales between 2013 and 2018.

“At that time in the market, if you were against a Chinese developer, you almost knew it was inevitable that you would not get the place,” said another.

But the London apartments market has sunk since 2014, driven by new taxes on foreign buyers and the uncertainty caused by three general elections and the Brexit referendum. High-end apartments in the most central parts of London are trading for 22 per cent less than they were in the summer of 2014, despite a modest increase in the past year, according to real estate agency Savills.

Index of Prime Central London Values ​​Index Chart showing the London Apartments market has fallen more than a fifth since 2014

It has spearheaded the optimistic projections on which developers based land investments. Shanghai-based Greenland paid £ 84 million for its land in Canary Wharf in 2014 and declared the value of a complete Spire at £ 800 million. But the developer put brakes on the project in 2018, noting that “the housing sector in London had changed markedly”.

As challenges have risen and fixed prices have fallen, Chinese investment in development sites and properties in London has fallen dramatically. The urgent question now is not whether the Chinese will continue to come, but whether they will leave completely.

Greenland insisted it had no plans to sell Spire London and intended to “take the development forward as a high-quality landmark project – which responds to the ongoing housing needs in the London Docklands”.

But the company is considering moving away from its second London scheme, a residential development on the site of an old brewery in Wandsworth, south-west London. According to people who were informed about the agreement, Greenland is in talks with “four or five potential bidders” and is close to exchanging contracts with one for the part of the site that is not yet to be built.

The company said any sale would depend “on market conditions in London and the quality of the offers received”.

It may also depend on conditions 5,000 miles away in Beijing. Greenland violates two out of three of the lending “red lines”, according to data from the Beike Research Institute. Its net debt value exceeds a ceiling of 100 percent, while its liability value excluding advance income is also too high by 82 percent. Developers who exceed the measurements are limited in their ability to take on new debt.

Previous regulatory interventions by China have humiliated the international ambitions of companies such as HNA and Dalian Wanda.

R&F and CC Land could only buy the Nine Elms site in 2017, after Dalian Wanda withdrew. The next wave of investors is now facing their own challenges.

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