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Tuesday, November 29, 2016, 22:48

Chinese builders chase up greener overseas pastures

By Oswald Chan
Chinese builders chase up greener overseas pastures
A huge poster advertising a residential block under construction in London. The cloudy outlook for the global economy has not deterred Chinese mainland developers from expanding overseas. Despite the Brexit vote, which has dented the UK capital’s property market, the world trading center remains one of the hottest picks for mainland developers due to the city’s global status and cosmopolitanism. (Simon Dawson / Bloomberg)

Chinese mainland developers have continued splashing their capital on overseas development projects, seeing the strategy as a move to diversify and hedge businesses amid a depreciating renminbi and the slowdown of the national economy.

Hong Kong-listed China Aoyuan Property Group (Aoyuan), with projects located mainly in the Pearl River Delta, the Yangtze River Delta, Beibu Gulf, the Bohai Rim and the core region in the central and western provinces, has been expanding into Australia since 2015.

The developer said in November it had forked out A$55.5 million (US$41.36 million) to acquire two residential projects in Sydney — Australia’s commercial capital — with a total gross floor area of 19,500 square meters that can provide 223 residential apartments. Presales of both projects will be launched in the near future.

Aoyuan launched presales of One30 Hyde Park (in August 2015) and Maison 188 Maroubra (in August 2016) in Sydney, with sale rates of 90 percent and 70 percent, respectively. The One30 Hyde Park development generated more than A$330 million in sales.

The developer picked Australia as the first choice in its overseas expansion due to the country’s strategic location in the Asia-Pacific region, comfortable living environment, an excellent education system and a stable political and economic climate.

Currently, Aoyuan has five projects in Sydney.

Jacky Chan Ka-yeung, Aoyuan’s vice-president and Australian office president, said the company needs to embark on overseas development projects to cushion against risks in China.

“With the mainland’s real-estate industry entering a silver age and the growth in migration and mainland overseas investment, we’ve chosen Australia as the first overseas expansion target as we expand our income sources and diversify our asset portfolio and operation modes to balance risks,” he told China Daily.

Aoyuan is also eyeing expansion into the Hong Kong and Canadian residential markets as both are popular migration destinations for mainland residents.

Shanghai-listed builder Greenland Group launched its second residential project in the UK in November this year. Called Spire London and located in London’s Docklands area, it will be the tallest skyscraper in Western Europe when completed in 2020. With a gross development value (GDV) of more than 800 million pounds (US$995 million), the project is a 235-meter-high, 67-storey residential tower with 765 apartments for private sale.

Roadshows for presales of Spire London have been held in Beijing, Shanghai and Hong Kong, with Kuala Lumpur, Singapore and countries in the Middle East to follow. Since the sales campaign was launched in September, more than 1,180 prospective buyers have expressed interest.

Greenland began its overseas expansion in 2012, and now has projects in 80 towns and cities on the mainland, and in 13 overseas cities. With a global portfolio of property and other assets worth 53 billion pounds GDV, the company is building more than 82 million square meters of new commercial and residential projects worldwide.

Qian Wenhao, managing director of Greenland (UK) Investment, told China Daily that gaining a foothold in the UK market is a strategic move for the company.

“The Brexit decision cannot be said to have had no effect on the property market in London, and we’re aware there could be some turbulence in future. During this period of change, the market has seen a flight to quality,” he said.

“We feel that the advantages of London — its global status, cosmopolitanism and being a center of world trade — bode well for a positive future for both the property market and the wider economy.”

More mainland developers are hedging their businesses by banking on overseas projects as their next driver of profit growth as a slowing national economy, the depreciating renminbi, macroeconomic tightening measures and falling profit margins being crimped by high land costs take their toll.

US-based credit rating agency Moody’s Investors Service said the stable outlook for the Chinese mainland’s property sector is being clouded by the rising risk of slower sales from tighter controls.

“We would consider changing the industry outlook to negative if the tightening measures lead to national contracted sales falling 5 to 10 percent, inventory to contracted sales ratios increasing and reaching the level registered in March 2015, as well as bank liquidity tightening and developers’ access to funding weakening,” said Kaven Tsang, corporate finance vice-president at Moody’s Investors Service.

It’s good for mainland developers to diversify their development project sites overseas and it’s important to be part of the London homes market

Peter Gibney, director at Jones Lang LaSalle’s (JLL) UK office

Peter Gibney, a director at Jones Lang LaSalle’s (JLL) UK office, said mainland developers should continue to look overseas.

“It’s good for mainland developers to diversify their development project sites overseas and it’s important to be part of the London homes market,” he said. JLL is the sole sale agent for Greenland’s Spire London project.

Gibney also said that mainland developers possess the same business acumen as locals to develop overseas projects. “Mainland developers definitively have the same business capability to compete with other developers in the UK property market. They are pushing boundaries and are showcasing what they can deliver by demonstrating the quality of work they perform.”

But, in the process of internationalization, mainland developers may not be familiar with the customs and practices of the country they wish to invest in, which may restrict the pace of their business development in other countries.

Aoyuan believes the localization strategy is the best way for mainland developers to succeed in overseas expansion.

In developing One30 Hyde Park project, Aoyuan teamed up with Australian developer Ecove to solicit professional experience for property development and project management in the Australian business context. By raising their execution credentials in Australia, Aoyuan can solicit financing of up to A$200 million at under the 5-percent interest rate supported by a bank consortium.

“We believe it’s important for any foreign-based developer to conduct themselves according to the customs and practices of the country they wish to invest in,” Chan said.
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