China’s property development curbs will hurt real estate investments

China’s restrictions on overseas property development will hurt Australia’s land sales and residential development but local developers may be able to mitigate the damage by filling the gap, developers and experts say.

The Chinese government has issued new guidelines to curb the global spending spree by Chinese businesses, banning investments in casinos and defence technology while restricting overseas property development and investments in hotels, sporting teams, cinemas and general entertainment.

“The impact from the China ban will be huge and will have a negative outcome,” heavyweight Chinese investor Shanghai United chief executive Yangdong Xu said.

“There won’t be an en masse “abandonment” of sites or buildings or half-done deals. This is not the aim of the Chinese government, and it is bad for reputation.”

“Those who have already closed deals and started construction will not be impacted,” he said.

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“There will likely be some site flips with some companies who have not broken ground and who will not be able to cope with the pressure. Combining weaker pre-sales for apartments, lack of bank lending, and now an inability to take out capital, the pressure will be huge for many.

“Australia should worry about it.”

China is Australia’s biggest foreign investor pledging to invest $47.3 billion, including $31.9 billion in real estate mostly in residential development, according to the latest Foreign Investment Review Board annual report.

Private investment group Shanghai United, a consortium of 10 private Chinese developers, forms part of that number, and is one of the most active in the market. It is developing the $120 million five-star luxury MGallery by Sofitel hotel and apartment tower Castle Residences in the Sydney CBD and recently acquired the Intercontinental Hotel Double Bay for $140 million.

While Shanghai United is not in Beijing’s sight – it has funded its investments with equity rather than debt – Mr Xu warns the group will be taking a slower approach to its next purchase.

Local developer TWT, which started up in Australia many years ago with Chinese seed capital, said the impact on newly arrived “mainland” developers would be dramatic.

“Local developers like us, who have been in Australia for quite a while won’t be affected. Only those mainlanders who just got here, particularly bigger more visible ones will feel pressure. It’s a very serious situation,” chief executive Gavin Zhang said.

Knight Frank’s head of Asian markets, Dominic Ong, was more sanguine about the situation saying China’s new instructions were targeted at non-core investments and would not affect genuine property developers out of China.

“China’s National Congress is coming up, and the government needs to demonstrate they are doing something proactive,” he said.

“To be honest, based on conversations with many Chinese players here, what Beijing is really doing is setting up a control framework for random non-core investments.”

The Chinese government confirmed the new curbs were aimed at “irrational” overseas investments while Mr Ong was confident it would not have an impact on his business.

“There is still a lot of appetite from local developers for housing sites anyway,” he added.

Mirvac is one of the local groups that has long factored in these changes and sees capital controls as an opportunity.

“We said last year we want to get our gearing to the low to mid level of our range so we are ready for opportunities. I remember someone asking me what might those opportunities be, and here might be one of those opportunities,” chief executive Susan Lloyd-Hurwitz said at its annual results last week.

Source: – AFR

Vito Chiodo