INVESTMENT

Chinese developer Xinyuan to launch fourth US project in Manhattan

PUBLISHED : Tuesday, 13 October, 2015, 11:23pm
UPDATED : Tuesday, 13 October, 2015, 11:23pm

New York-listed Chinese developer Xinyuan Real Estate will build its fourth project in the United States in Manhattan.

It also plans to raise a fund for investment at a time when the Chinese housing market is struggling to shake off a burdensome glut.

Its third US project, launched for sale last year, fetched the highest price ever in the trendy Williamsburg neighbourhood of Brooklyn in New York, as a penthouse was recently sold for US$6.5 million.

Five remaining penthouses in the 216-unit Oosten project had yet to be sold, with one priced at US$8 million, said the company's chief financial officer, George Liu Huaiyu.

Xinyuan, founded by Zhang Yong in Zhengzhou, Henan province, bought the land parcel for US$54.2 million in 2012, following successful projects in Nevada and California. It is among the first group of Chinese developers to venture abroad.

Liu told the South China Morning Post the internal rate of return would fall from about 70 per cent for the Brooklyn development to above 30 per cent for the Manhattan project, which the company plans to officially launch for sale about 100 units in the second half of next year or early 2017.

"If you start to invest in the US now, there are some concerns about the [condominium] market in Manhattan," he said. "But the [internal rate of return] is still much better than that in China."

Recently, the largest US luxury home builder, Toll Brothers, warned against signs of a glut in ultraluxury condominiums after it watched units sit on the market.

Liu said Xinyuan was targeting the mid to high-end market, pricing its homes at US$2,000 per square foot or above, cheaper than those of Toll Brothers.

In China, the days of more than 30 per cent internal rate of return are over. The industry's average net profit margin dropped to single digits in this year's first half for the first time as soaring land cost and oversupply depressed profitability.

While quickening its destocking efforts in China, mainly in tier-2 cities such as Suzhou, Xian and Jinan, Xinyuan plans to raise a fund for investment in future US projects to fully tap the potential of its team in New York.

And the timing cannot be better as mainland investors are seeking to diversify their investments following the stock market rout and rising worries about a weaker yuan.

Analysts expect a possible US interest rate rise, likely in March next year, will drain capital out of emerging markets to the US, which is leading a global economic recovery while the euro zone is struggling and China is suffering a slowdown.

Liu said the lessons learned from venturing alone, rather than as a financial investor like bigger rival China Vanke, in US projects would help Xinyuan better navigate regulations, cultural and litigation risks.

For example, there was a 20 per cent cost difference in hiring construction workers depending on the trade unions they belonged to, he said.

In C-Suite, Liu talks more about the company's fundraising and US experience.

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