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https://scmp.com/property/article/3188168/china-skyscraper-plans-teeter-new-height-rules-further-complicate-high
Property

China skyscraper plans teeter as new height rules further complicate high-concept projects for indebted developers

  • The country’s top planning agency will no longer approve buildings taller than 500 metres, and will strictly limit those above 250 metres
  • Cash-strapped developers may have to re-do plans or even sell partially built projects at a loss
Workers put finishing touches on the Greenland Center in Wuhan, in central China’s Hubei Province, on November 16, 2021. Photo: Xinhua

Plans for a new generation of skyscrapers that would soar above the skylines of Chinese cities may come back down to earth thanks to a new government-imposed height limit that complicates such projects for developers already struggling to endure a debt crisis.

The situation may force cash-strapped developers to literally go back to the drawing board on some buildings, or sell partially built projects at huge discounts, further weighing on their liquidity.

New buildings taller than 500 metres (1,640 feet) will no longer be approved, while towers exceeding 250 metres will be strictly limited, according to a document issued on July 12 by the National Development and Reform Commission, the country’s top planning agency. The commission also said structures taller than 100 metres must strictly match the scale and the fire-rescue capacity of their locations.

“It is definitely bad news for the developers who have skyscrapers under development, particularly those distressed ones,” said Kenny Ng Lai-yin, a strategist at Everbright Securities International. “Without the favourable policies, these skyscrapers could become hot potatoes.”

The Evergrande Group headquarters (left), pictured among other skyscrapers and construction sites in Shenzhen on September 24, 2021. The indebted property developer has been involved in two unfinished skyscraper projects. Photo: AP
The Evergrande Group headquarters (left), pictured among other skyscrapers and construction sites in Shenzhen on September 24, 2021. The indebted property developer has been involved in two unfinished skyscraper projects. Photo: AP

Zhongnan Group, for example, slashed the height of Zhongnan Center in eastern Jiangsu Province’s Suzhou from its original 729 metres to 499.2 metres to meet the requirement, which was first announced a year ago.

The 103-floor tower, currently under construction, is slated for completion in 2025. But concerns are swirling as the company’s major listed arm, Zhongnan Construction Group, asked its offshore creditors to extend the maturities of two US-dollar denominated bonds in June.

“We may see some of the skyscrapers halted in the middle of construction for a rather long time, as it may take a longer time to seal a takeover deal,” Ng said. “And the developer may have to sell it at a huge discount or even book a loss, because whoever takes it over may have to change the existing design and construction with the official ban coming in.”

China, home to almost half of the world’s 100 tallest buildings, currently has 27 unfinished skyscrapers, eight of which have been put on hold, according to the Chicago-based Council on Tall Buildings and Urban Habitat.

Some of the projects on the list belong to Chinese developers who are already struggling to pay their creditors and suppliers, while also running behind on delivering residential homes they have already sold.

The world’s most indebted property developer, China Evergrande, which defaulted on its junk bond last December, has been involved with two suspended skyscrapers.

Tycoon Hui Ka-yan kicked off construction of the 518-metre Evergrande Hefei Center T1 in eastern Anhui Province in 2016. With an estimated investment of 16 billion yuan (US$2.4 billion), the project has been sitting idle since 2019.

Meanwhile, in May Evergrande announced a deal selling City Light Plaza in the eastern Zhejiang province city of Ningbo to Zhejiang SASAC and Zhejiang Construction Group for 1.3 billion yuan. Construction of the planned 453.5-metre Evergrande City Light started in 2021 right before the Evergrande crisis began, and was slated for completion in 2026.

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In Shenzhen, a 700-metre, 50-billion-yuan tower that was meant to rise above southern China’s tech hub by 2027 or 2028 seems unlikely to do so now, after developer Shimao Group, which defaulted on a US$1 billion bond in July, reportedly put the site on the market in January to ease its debts.

Five of the 27 uncompleted skyscrapers belong to the state-backed Greenland Group, whose US bonds were downgraded by S&P for default risks in June.

“Skyscrapers are like luxury goods sought after by the irrationality of local governments, developers and some individual investors when the economy is booming,” said Maggie Hu, an assistant professor of real estate and finance at The Chinese University of Hong Kong.

Skyscraper construction went into overdrive in China during the 1990s as the country’s rapid economic development catapulted the country to second place among world economies and made the nation’s factories the world’s workshops.

“Now, it would be a wise choice for [developers] to change the original planning, or look for a third party to take over the projects,” Hu said.

However, it may not be easy to find a white knight, as the entire housing market in China has been bruised.

Since Beijing enforced its so-called “three red lines” policy in August 2020 to control debts in the sector, property developers’ ability to sell homes to generate cash has been affected, causing a rise in bond defaults.

So far this year, 22 Chinese developers have failed to repay principal or coupons on their bonds, while another seven have asked investors to extend their maturities.