Sunday, December 5, 2021

China’s property woes could spell trouble for mega projects

China's property

China’s property sector woes could spell trouble for mega-projects across the world as the developers behind them scramble for cash

China’s property sector woes could spell trouble for prestige mega-projects in London, New York, Sydney, and other top cities as the developers behind them scramble for cash.

While China Evergrande Group’s struggles have dominated the crisis, the risk to multitrillion-dollar global property markets stems from some of its rivals that have spent the last decade competing to build ever taller and grander skyscrapers.

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

The developer says it remains committed to its flagship builds including its long-delayed, 235 meter-high Spire London tower, but it put part of another major London site on the market earlier in the year and other firms are hoisting for sale signs too.

Evergrande and Kaisa Group, which was the first Chinese property firm to default back in 2015, are both trying to sell Hong Kong buildings to drum up desperately-needed cash, while Oceanwide Holdings has just had what was supposed to be San Francisco’s tallest tower seized by disgruntled creditors.

I suspect, as with anything, if you’re running into liquidity issues you start to look to sell your investment properties, said Omotunde Lawal, head of emerging-markets corporate debt at asset manager Barings, which holds some Chinese property firms’ bonds.

As many Chinese firms overpaid for prime overseas sites in the scramble to secure them, the question is who will buy them, Lawal added. Probably they are unlikely to get cost, so I think it depends on just how desperate they get.

Guangzhou R&F Properties is another major firm in focus after it required an emergency cash injection this month. It has two giant unfinished developments in London, including one with a dozen skyscrapers next to the Thames, as well as numerous builds in Australia, Canada, and the United States.

An R&F spokesperson in London said it remained fully committed to all its British projects.

But with nearly $8 billion of debt to repay in the next 12 months, only $2 billion of freely available cash, and sales down nearly 30% year-on-year last month, major credit rating agencies say it will need to cash in some chips.

R&F’s capacity to handle its near-term debt maturities will hinge on the execution of sizable asset sales, S&P said, predicting that buildings, hotels, and various stakes in projects could all be sold. Fitch meanwhile estimates R&F has 836 billion yuan ($130 billion) of assets that could potentially be sold.


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