China’s crackdown on property developers threatens the London property market.
How the chinese property collapse could affect property prices in rest of the world and in london in particular. the biggest chinese developers don’t just build in china, many have developments all around the world so in today’s piece we will discuss their international investments and how as i’m sure most of you
Know, evergrande is chinas second largest property developer and the world’s most indebted real estate developer. they have been all over the news recently, having sparked fears across global markets two weeks payment deadline on their offshore debts. this wasn’t classified as a default as there is a 30
Day grace period on that coupon payment. then, last week, another smaller chinese developer, fantasia, defaulted on an offshore bond, and more troublingly we learned that fantasia also defaulted on a $100 million dollar loan to country garden – which is chinas largest property developer. the fact that these struggling
Real estate companies are lending to each other makes contagion within the industry more of a risk. excessive leverage in the chinese economy, and chinese regulators have been trying to reduce the economy’s overreliance on debt. their main approach has been to implement the “three the three red lines
Were hard limits on the new policy meant that – not only could these developers no longer borrow any additional funds, but they were actually required to quickly pay down their debts. this required them to sell assets often at fire sale prices. this of course caused a spiral, as the losses on those sales only made
Their debt ratios look worse, putting further pressure on them to deleverage further. that’s struggling the most, but the pain being inflicted by the three red lines on chinese it would now appear that these problems among chinese property developers could according to the ft a uk property consultant claims to
Have been contacted by a uk regulator with concerns about the risks of contagion in london. “the big question is whether the chinese “that would be a pretty big crisis in the uk the london residential real estate and high-end apartment prices in central london are down around 22% since the summer of 2014.
There has been political uncertainty due to three general elections over that time period, pandemic – and the move to working from home has not helped urban property prices anywhere. over that period a lot of chinese money poured into london real estate, with the deal value having peaked in 2017. so far this year there
Has been no chinese investment in central london according to real capital analytics. and this of course makes sense, as these developers are not going to expand internationally when they are under pressure from beijing to cut their leverage. that period? well, in 2014, greenland group a chinese property developer
Announced that they would build europe’s tallest residential tower in canary wharf. they paid 84 million pounds (or around $115 million) for the plot of land. they laid the foundation for the building, but all construction came to a halt shortly thereafter. by sales, bought a site in east london, for £80m –
A bit over $100 million back in 2018, with plans to create a £400m development of almost r&f properties in 2017, paid close to 500 million pounds (or 700 million dollars) for a site in nine elms, in south-west london, which remains unfinished. the developers claim that beijing’s crackdown will have no effect on
The development, and that their projects are fully financed. according to a london based property developer, the stresses these developers are experiencing to reduce their leverage or down to a weak that before the recent turmoil in china, most chinese developers that began building in the uk had fairly
Disastrous results. they paid an awful lot for the land, struggled with construction this is only so much of a surprise. you see this all the time in almost every industry where a company has been very successful in their home market and assumes that they will be equally successful in a very different foreign market,
Only to find that conditions there are quite developers consistently outbid english property developers for real estate projects in london, for all their inexperience they nonetheless understand the london housing market far better than the locals do, or that they are overpaying. they could be overpaying because conditions
In their home market allow them to ignore profit considerations in favor of prestige. we saw this in the 1980’s with japanese property investors overpaying for trophy assets abroad. japanese investors bought the empire state building for a number of uk developers have described being constantly outbid by chinese
Developers in land sales between 2013 and 2018, saying that if you were up against a chinese developer, you knew it was inevitable that you wouldn’t get the site”. as the challenges have mounted in london, and apartment prices have fallen, chinese investment tailed off dramatically. the pressing question greenland
– Who are building the spire building in canary wharf insist that they have no plans take the development forward as a high-quality, they do say that they are considering scheme, a residential development on the they are allegedly in conversation with “four or five potential bidders” and close to exchanging
Contracts with one for the portion of the site that is yet to be built. greenland say that any earlier on i quoted a uk property consultant who said that the chinese restricting investment uk and elsewhere. this is not necessarily true. foreign direct investment is based on the country is always constrained by a shortage
Of capital. that is why when foreigners promise to invest in a country, it is assumed that this will circumstances. under other circumstances, what matters are the underlying so, while chinese investment can cause developing economies to grow faster, it is less likely in a situation where capital is a scarce
Resource because countries like the uk don’t suffer from a scarcity of investible capital, the benefits foreign direct investment helps grow an economy if capital is scarce, if technology is scarce and not figured out how to invest profitably, the country receiving the investment needs if chinese
Developers stopped buying up sites in the uk to develop, this shouldn’t really cause an economic crisis for the country, it would really only be bad for people who own these assets and are hoping to offload them to foreign investors right now, the main effect of chinese developers being forced to deleverage
Is that they might be forced to dump their international assets, and can actually be sold. often in a crisis, investors dump their highest quality assets first, for no reason other than that these are the only ones that can be sold, they find themselves left holding the most toxic assets that were causing
The pain to begin with. as i mentioned earlier central london real estate is down over 20% international investors are not doing very well on their london real estate investments. feeling as much pain as you might expect, simply because the low interest rate environment means that their mortgage payments have been
Even if their home has fallen in value, their loss is offset by the fact that their monthly mortgage payment has been significantly lower the same period. the real question is how will if you found this video interesting, check out my piece from a few days ago on the fantasia default, and might be a sign of contagion in the
Transcribed from video
Could Evergrande Impact Global Property Prices? By Patrick BoyleliveBroadcastDetails{isLiveNowfalsestartTimestamp2021-10-11T213009+0000endTimestamp2021-10-11T214322+0000}
