Better luck in Tinseltown?

Property tycoons look to Los Angeles as home sales in China lose sparkle

Wang, chairman of Dalian Wanda Group, touches his face during an interview at his office in the company's headquarters in Beijing

American dreams: Wang’s making a big push into LA property

As the owner of the AMC cinema chain, Wang Jianlin already rubs elbows with Hollywood A-listers like Leonardo DiCaprio, Nicole Kidman and Catherine Zeta-Jones. But now he wants to extend his reach into the film industry by becoming one of the biggest landlords in Hollywood.

Last week, Wang’s company Dalian Wanda announced that it is investing $1.2 billion in a mixed-use development in Beverly Hills, one of Los Angeles’ most sought-after locations. The development will include luxury apartments and office space targeting entertainment industry clients. “The Los Angeles project will serve as the Wanda Group’s first important step into Hollywood,” Wanda said in a statement. Another objective is “to aid in China’s entry into Hollywood’s film industry and generally promote Chinese culture abroad.”

In the same week, Dalian Wanda also unveiled plans to invest $900 million in a five-star Wanda Vista hotel on Australia’s Gold Coast. The largest commercial developer in China says the investment in Australia is part of a strategy to diversify its earnings outside of the country, reports Xinhua.

Dalian Wanda has been expanding overseas for a while. In July, the developer said it would spend $900 million building the third-tallest tower in Chicago. In June, it bought a 28-storey building in Madrid from Spanish financial institution Banco Santander for $361 million.

As WiC has reported previously, Chinese developers have been venturing abroad with gusto.

Vanke, the largest China-listed developer by market capitalisation, has started construction of two luxury housing blocks in San Francisco. Meanwhile Shanghai-based Greenland is leading the multibillion-dollar regeneration of Brooklyn’s Atlantic Yards, as well as erecting a $1 billion office tower in downtown LA.

Analysts say developers are expanding overseas at a time when the Chinese housing market is in the doldrums.

Indeed, the data remains fairly bleak. In July, new home prices fell month-on-month in 64 of the 70 cities, says the National Bureau of Statistics. In terms of floor space sold, the market also suffered a 16.3% decline, much steeper than the 0.2% drop in June.

Real estate moguls also pulled back from making new investments. Centaline, a property agency, says 20 of the country’s largest developers have spent Rmb182.5 billion ($26.9 billion) so far this year on buying land, down 38% year-on-year.

To lure homebuyers back to the market, authorities in 30 cities have started to loosen property restrictions that had prevented investors from buying second (or more) homes, says 21CN Business Herald. Just this week, Global Times reported that Harbin and Xiamen had eased curbs on housing purchases, for instance, and only 11 cities (including the four first-tier cities – Beijing, Shanghai, Guangzhou and Shenzhen) have held off from adjusting their home purchase limits. But that looks about to change too. Last week, Shanghai Securities News reported that the authorities in Beijing and Shenzhen are pleading with the central government to let them relax the home purchase rules. Beijing’s municipal housing authority is also mulling a plan to adjust the standard for “general housing” which could mean that buyers of homes previously labelled as “luxury housing” start to enjoy preferential policies granted currently to the purchasers of small and medium-sized homes.

If successful, Shenzhen may also follow suit.

Beijing prices fell 1% from June to July, posting the first monthly decline since April 2012. Prices in Shanghai and Guangzhou also dropped 1.2% and 1.3% respectively, the biggest slides since January 2011, when the government started compiling the data.

Land sales in those four first-tier cities also sank by a staggering 70% to Rmb21.7 billion in July. “The housing market is so bad that land is not selling. In reality, the local governments are even more anxious than us,” one developer told Securities Times. (This matters: local governments rely on land sales to balance their budgets.)

According to data provider China Real Estate Index System, 31 Chinese cities are burdened with an excess of housing inventory that will take more than three years to clear (by taking into account the amount of residential land sold between 2011 and 2013, plus the rate of each city’s respective annual housing sales). For some cities, it is worse. Places like Lanzhou, Ningbo and Jinan have inventories that will take more than five years to digest, the data compilers reckon.

But industry insiders say that relaxing the property curbs isn’t the magic bullet that city governments and developers may be hoping for. In places like Wenzhou and Guiyang – two of the first cities granted approvals to loosen the rules – the number of housing transactions continued to fall after their local governments rescinded restrictions, 21CN Business Herald warns.

“Market expectations in the property market are still unclear and home buyers have chosen to stay on the sidelines,” Liu Jianwei, a statistician at the National Bureau of Statistics, concurs.

Others are arguing that the housing market will continue its downward spiral until the central bank cuts interest rates. Correspondingly, some local governments have been asking banks to lower requirements for downpayments on second homes, or providing subsidies to banks that offer more enticing mortgage terms. At the moment, few lenders are eager to make loans at rates of 6 to 7% (a level that Chinese homebuyers deem ‘favourable’, according to the Global Times).

“Relaxing purchase restrictions is not going to have a big impact on the housing market in China. Whether or not the government relaxes credit lending, however, is going to be very critical over the next year,” says Zhang Dawei, chief analyst at Centaline.

There is also another dynamic at work in the luxury end of the market too, says the Wall Street Journal, and it’s the result of Xi Jinping’s ongoing anti-graft campaign.

“China’s corruption crackdown has already taken a bite out of the hospitality sector in China with its ban on lavish banquets and it is now starting to make waves in another corner of the economy, as officials afraid of government scrutiny are dumping apartments,” the newspaper suggests.

It said it had interviewed a dozen property agents who confirmed that bureaucrats are now afraid to buy higher-end property in the new political climate. Several others were trying to offload real estate that might raise red flags (i.e. purchases that look way beyond pay grades). “Officials are focused on selling their homes quickly, so they are willing to sell at 5% to 10% cheaper than the average price of comparable homes,” a Shanghai estate agent told the Journal.

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