Wanda faces numerous challenges in first London project
Mainland developer launches first London project just as prime housing cools and city contends with construction supply chain problems
It is going to be a tough start for Dalian Wanda Group in Britain, industry experts say, as the mainland property-to-film conglomerate begins its first London project amid rising competition for clients and contractors, just as the tide in the city's prime home market appears to have begun to ebb.
Wanda will market the One Nine Elms project in Hong Kong over the weekend, just a week after a Malaysian consortium started the sales process here for the iconic Battersea Power Station project.
The two projects are about 1km from each other, both at the waterfront along the south bank of the River Thames, at the redevelopment zone of Nine Elms that comprises more than 20 different developments.
Wanda's project is of a smaller scale, some 213 flats in the first release, and sits on existing infrastructure, said Michael Purefoy, a deputy general manager of Wanda's international real estate centre in Beijing.
He told the South China Morning Post that clients' response from London, Singapore, Beijing and Shanghai had exceeded expectations, as global awareness of the Wanda brand grew amid the company's aggressive expansion in countries including the United States, Spain and Australia.
Wanda bought the site last year in London near the new US embassy in its first foray into overseas markets. The 1.13 million sq ft scheme comprises two residential towers of 439 flats - one of which will be central London's tallest residential building - and a hotel. It is due for completion in late 2018.
Foreign buyers have fuelled soaring home prices in London in the past few years. However, a survey by the Royal Institution of Chartered Surveyors showed expectations for housing inflation in the British capital were falling at the fastest pace since before the global financial crisis on worries about a strengthening pound, rising interest rates and possible punitive taxes on overseas buyers.
Mark Farmer, head of residential at consultancy EC Harris in London, is more concerned about the delivery.
"Wanda is bringing forward One Nine Elms in one of the most challenging London development markets of recent years," he said.
"There are big contractor and supply chain capacity problems at the moment which are making the selection of construction partners very difficult."
An EC Harris report in October estimated total prime residential units in the pipeline would hit 12,000 in the next three years with a peak in 2017, and planned completion would overshoot a deliverability ceiling of no more than 2,500 to 3,000 units per annum in the years between 2016 and 2019, considering both financing and human resources.
London media said Wanda had appointed architects, project managers and cost consultants, but has yet to finalise the decision on its main contractor.
Meanwhile, the 42-acre Battersea development has also yet to pin down the contractor for its third-phase construction, which will offer 539 apartments. It had fixed-price contracts for the first two phases. Delivery will start from mid-2016 until 2025.
"The constructors are busy but there is still a lot of competition in the market," said Simon Murphy, chief financial officer of Battersea Power Station Development. "So we are comfortable that the numbers we have in our appraisal will be delivered in terms of cost, and we have funded the whole project."
Murphy, a former HSBC banker, is betting on the history of the Battersea Power Station, which at its peak supplied a third of London's power but ceased operation in 1983, to attract Asian buyers against rivals. But he said developers including Wanda can help rebuild the old industrial Nine Elms neighbourhood.