China’s biggest-ever overseas property buying spree reversed course in dramatic fashion in 2018. But even after the record unwinding, many lucrative real estate assets remain in Chinese hands.
They include the 245 Park Ave skyscraper in Manhattan, New York’s famed Waldorf Astoria Hotel and Chicago’s Vista Tower, under construction but envisaged as one of the city’s tallest buildings.
With economic growth slowing, keeping a tight rein on capital outflows is expected to remain a key theme for Beijing. That could see disposal records smashed again in 2019. Beijing put an end to the party in mid 2017, telling the nation’s four largest private conglomerates — HNA Group Co., Anbang Insurance Group Co., Fosun International Ltd. and Dalian Wanda Group Co. — they had borrowed too aggressively.
A forced liquidation was mandated and a “banned list” produced that dumped offshore property and hotels in the restricted basket, and casinos in the don’t even think about it one. It wasn’t until the end of that year the spending tapered off. In 2016 and 2017 combined, Chinese companies splashed out an unprecedented $89 billion on real estate.
In 2018, the deleveraging drive really started to take effect. Real estate asset sales by Chinese companies have surged to $12.3 billion since January, up from $5.3 billion the year prior, preliminary
data compiled by Real Capital Analytics show.
“While capital controls remain in place, China won’t be the main driver of Asian
outbound investment,” said Stephanie Yang, CBRE Group Inc.’s senior director of global capital markets.
Buyers from places including Singapore and South Korea are already taking the place of Chinese in markets such as the US and Europe, she said.
The asset sales were “driven in part by the government’s push to reign in the most aggressive buyers, but also by a requirement to reduce debt levels,” said Jeffrey Langbaum, a commercial real estate analyst at Bloomberg Intelligence.
HNA was arguably the worst offender on the trophy collection front, amassing stakes in airlines, catering companies, tech distributors, hotels, asset managers and a currency exchange. Wanda got into cinemas while Fosun, run by Guo Guangchang, a self-styled Chinese Warren Buffett, bought Club Med and a stakes in overseas fashion houses.
Anbang’s unfettered spending, meanwhile, saw authorities seize control of the conglomerate in February and the insurer’s former chairman, Wu Xiaohui, sentenced in May to 18 years in prison after being convicted of fundraising fraud and embezzlement.
HNA has gone some way to making amends, ending 2018 as the No. 1 seller among the four and accounting for five of the 10 biggest property disposals. Affiliate units have been missing loan and bond payments for months, evidence more cash needs to be brought in the door to overcome HNA’s liquidity challenges.