Chinese Property Investors Make Big Bets Overseas

Property developer Xu Weiping plans to construct a business district on a neglected site at the Royal Albert Docks in east London. Peter Nicholls for The Wall Street Journal

LONDON—Over the past three decades, Xu Weiping has been an industrial designer, government researcher and appliance salesman.

Now he's seeking to build a £1 billion ($1.63 billion) business district on the edge of London, one of a growing number of Chinese developers launching their first projects in big Western cities. His efforts say as much about China's global ambitions as they do about the economic challenges he and the government face at home.

The slowing of China's economy and the government's encouragement of diversification have sparked a global push among Chinese investors and developers. Last year, Chinese investors purchased more than $13.9 billion of overseas commercial property, according to Real Capital Analytics. That is more than the combined total for the four previous years.

The trend has cooled this year along with the country's economy. But the $4.4 billion in deals in the first half is still more than the entire deal volume in 2012, when Chinese investors bought $3.7 billion in foreign property, Real Capital said.

 

Some of China's largest developers are moving forward with construction projects in the U.K., the U.S. and other countries. They are being driven by tight lending by banks at home, increasing competition from smaller developers and declining demand for the large-scale projects that the big companies favor.

London, with a foreigner-friendly tax regime and robust financial framework, is one of the first places they target.

For developers, "it's a game of evolution," said Jingjing Ma, head of Asian investment in the U.K. at DTZ, a real-estate services firm. "The Chinese market is crowded. They have to develop growth overseas."

In the U.K., Mr. Xu was greeted with skepticism when he unveiled plans last year to convert a long-vacant, 35-acre patch of cracked East London asphalt into a magnet for Chinese companies, even though he had the backing of London Mayor Boris Johnson.

But since then, as Chinese real-estate investment in the U.K. and other foreign countries has surged, the project at Royal Albert Dock has gained traction.

Newham Council, the local government authority, granted planning permission this summer to Asian Business Port, the U.K. arm of Mr. Xu's China-based development firm Advanced Business Park. Surveying work has begun. Construction is scheduled to start next year.

A big test for the planned 4.7 million-square-foot complex will come in November. That is when, Mr. Xu says, 10 companies are due to make down payments for buildings that they intend to buy and occupy. He declined to identify the companies, but said, "I think most will come from China, at least at first."

Chinese investors from outside the mainland also have big plans for London. Up the River Thames, Hong Kong billionaire Henry Cheng Kar-shun is funding a £5 billion project on the 150-acre Greenwich Peninsula, where plans call for 10,000 homes, hotels, shops, and 48 acres of green spaces. The scale of the project—where work is under way on 500 homes—"takes so much capital," said Sammy Lee, vice chairman of Knight Dragon, Mr. Cheng's property-development firm. "This is out of reach for most to achieve."

Other Chinese developers active overseas include state-owned Greenland Group, which is involved in two London projects totaling £1.2 billion, as well as a housing complex next to the new Barclays Center arena in Brooklyn, N.Y. In San Francisco, a venture of China Vanke Co. 000002.SZ +1.06% and Tishman Speyer Properties LP is developing two luxury condominium towers.

Mr. Xu displays a model of the business park planned for the Royal Albert Dock site. Peter Nicholls for The Wall Street Journal

To be sure, Mr. Xu's Royal Albert Dock project still faces obstacles before breaking ground, such as lining up financing. Its success hinges on building sales, which will fund one-third of the project.

Mr. Xu's company will finance another one-third, while the final third will be financed by banks or international investors. Mr. Xu, 54 years old, said he met two interested Middle Eastern sovereign-wealth funds earlier this month.

For now, the formerly public land 8 miles from central London resembles a parking lot surrounding two abandoned government-protected buildings, which will have to be restored. The shipping industry left the area, heavily bombed during World War II, in 1981. Nearby neighborhoods are among the poorest in the city.

But Mr. Xu has a powerful ally in the administration of Mayor Johnson, which has been courting Asian capital to help address the growing city's lack of homes, and transform unused public land. "In fact, the name ABP, as Asian Business Port, came from a discussion with the mayor and his team," Mr. Xu said.

For Mr. Xu, a U.K. business park catering to Chinese companies reflects his own path out of China.

Mr. Xu studied industrial design in college and after graduation worked as a designer at an electrical engineering factory, and later as economic researcher in the government's rural development department.

In 1990, with 2,000 yuan—the equivalent of about $400 at the time—he started buying and reselling the backlogs of appliances from factories. He built a business empire from there, founding Zhongnan Equipment Co., which produced domestic appliances based on 10 of his patents, he said.

In 1996, he sold the company and went traveling "to learn more about Western free markets," he said. Part of the trip was to the U.K., where he now spends a third of his time—he owns a home in Barnett, in North London.

Mr. Xu founded Advanced Business Park in 2003, hoping to capitalize on the rise of an entrepreneurial business class in China. The idea was to transform industrial wasteland into business parks for emergent companies.

The London project is his first abroad. Mr. Xu said he was eyeing another opportunity near the current Royal Albert Dock site, as well as prospects in Paris, Frankfurt and New York. He focused first on the U.K., he said, because "the U.K. is a very small country. So if you didn't snatch up the opportunities early enough, there wouldn't be any opportunities left."

Xu Weiping surveys the vacant site where he intends to construct commercial properties that he hopes will be occupied by Asian businesses. Peter Nicholls for The Wall Street Journal

source by:http://online.wsj.com/articles/chinese-property-investors-make-big-bets-overseas-1411055544