Property

Troubled towers

Some high-profile skyscrapers in China are struggling commercially

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If good things come to those who wait, then some homebuyers in Tianjin may finally be rewarded. Last week, property developer Sunac China announced that it has taken over a half-abandoned construction project called The World – located on a suitably gigantic site in the municipality’s suburbia.

Back in 2007, Shining Star, a now defunct property firm, spent Rmb6.3 billion ($928 million) to buy the land on which The World sits, rendering the transaction the most expensive property deal in China that year. When completed, The World – whose Chinese name roughly translates as “star over five continents” – would boast Tianjin’s tallest residential buildings.

Alas, the stars stopped glittering in 2012, after the cash-strapped Shining Star was forced to abandon the project mid-way through. Industry observers were unsurprised: the mega project needed another Rmb20 billion in investment while the developer had no more than Rmb12 billion in total assets. Since then, the half-completed buildings have stood idle and The World has become a ghost town.

With Sunac acquiring 80% of Shining Star’s shares in May, there is finally hope for earlier buyers. Already, the takeover has boosted home prices at the development to around Rmb12,000 per square metre from just Rmb4,000 a month ago.

“A lot of people were willing to sell even at a steep loss. But after news that Sunac has acquired the developer, many sellers have taken down their listings,” one local real estate agent told China Economic Weekly.

Of course the so-called “rotten tail” buildings, a local term for troubled property projects such as The World, are unique to Tianjin.

Four plots of coveted land located in Beijing’s central business district, right across from China Zun – soon-to-be the tallest building in the Chinese capital – have also grabbed headlines. That’s after the revelation that not a single brick has been laid on the sites since they were auctioned in 2010 for a total of Rmb11.8 billion.

The delay is not because of a financially distressed developer though. According to Caixin Weekly, the problem is that the municipal government has been unable to transfer the plots’ proper land titles.

How so? A company, called CBD Development, controlled by a certain Anbang Insurance, currently holds the right to use the plots of land. CBD Development was initially hired by the Beijing government to do preliminary development work (like demolition and other basic infrastructure construction tasks) before the land was put up for auction. However, the Anbang unit has since refused to transfer the rights back to the government, claiming that it hasn’t finished preliminary development.

“Anbang Insurance may have hoped to obtain the development rights of all four plots but the plan failed. And it is not satisfied earning the fixed-rate payment for the initial development,” one insider told Caixin.

However, with Anbang’s boss Wu Xiaohui currently detained by the authorities (see WiC371) its appetite for a continuing spat with the Beijing municipal government may have waned. That said, it speaks volumes about Wu’s erstwhile political connections that he was prepared to defy a local government as powerful as the capital city’s.

Elsewhere in the country, there are more stories of troubled skyscrapers. Take Shanghai Tower, a 121-storey building that enjoys the bragging rights as China’s tallest. Yet according to China Times it could also end up as the country’s “tallest ghost town”.

Since its completion three years ago, Shanghai Tower has only leased out 60% of its 220,000 square metres of office space. And only one third of those tenants have moved in.

The project originally hoped to attract tenants from the financial services sector. However, in spite of its iconic location at the heart of Shanghai’s Liujiazui business district it has struggled to do so – the most recognisable tenant is Ant Financial, the online payments platform owned by Alibaba Group, which has leased 17,300 square metres.

The Wall Street Journal points out that Shanghai Tower has two main problems filling its floors. The first is its price, asking up to Rmb18 per square metre, almost 50% more than the average rental for high quality Shanghai office space. The other problem: delays by the city government in issuing occupancy permits owing to fire safety concerns (see next story for more on this topic). However, the newspaper also pointed out that vacancy rates across the city have been rising, and tenants are trading down from prestige buildings as the local economy grows more slowly.

And it isn’t just Shanghai that’s facing an oversupply of commercial space. Property consultancy Knight Frank says that a surplus of Grade A office and shopping mall space will soon hit other major Chinese cities, further softening rental growth and pushing up vacancy rates around the country.

For Shanghai Tower, that is certainly cause for alarm. “If there is no market, the building will become a ghost tower,” Gu Jianping, its developer, warned last year at an awards ceremony, reports the Wall Street Journal.


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