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Beijing developer hits NYC

By Wang Bowen in New York (China Daily) Updated: 2012-11-24 14:14

The recent acquisition by Beijing's Xinyuan Real Estate Co of a planned condominium site in New York City could be a watershed for Chinese-backed property development in the United States.

Beijing developer hits NYC

This 2-acre site in the Williamsburg section of Brooklyn will be home to a 216-unit condominium building to be developed by Xinyuan Real Estate Co, which paid $54.2 million for the property. [Photo/China Daily] 

Xinyuan's $54.2 million purchase, announced Sept 28, of a parcel totaling 2 acres (0.85 hectares) in Brooklyn is unusual in size and scale for a residential-property transaction in the United States by a Chinese developer.

"The location is very popular with US domestic purchasers, and New York is a top destination for purchasers from China," Chairman and CEO Yong Zhang said in announcing the deal, which was completed by Xinyuan's US division, XIN Development Group International Inc.

It also appears to be the first residential deal in the United States by a US-listed public company from China. Xinyuan has been trading on the New York Stock Exchange, in the form of American depositary shares, since December 2007.

"I know about some companies looking around the US for proper land to purchase, but we are among the first to execute the move," Chief Financial Officer Tom Gurnee told China Daily.

Dan Fasulo, managing director at Real Capital Analytics, which tracks real estate investment, agrees that other Chinese developers are likely to pursue big residential projects on US soil.

"The story the media is missing is billions, if not tens of billions, that the Chinese government is investing in the US real estate market through a whole variety of proxies," Fasulo said. A key reason is the official Chinese policy to diversify its foreign assets from high levels of US Treasury bonds, he said.

While this will be Xinyuan's first start-to-finish housing development in the US, the 15-year-old company has been active on the residential market with other deals. During the recently ended third quarter, it also acquired 15 finished luxury condo units in Irvine, California, for $10 million. In the second quarter, Xinyuan closed on a $7.4 million purchase in foreclosure of 325 finished lots and 185 acres of undeveloped land at various sites near Reno, in northern Nevada.

Deals in the US and other countries are part of a strategy for Chinese investors - individuals and developers - to expand portfolios despite limitations in China on ownership of multiple properties in some cities, in order to keep housing affordable for residents.

Domestically, Xinyuan describes its focus as high growth in strategic "Tier 2" Chinese cities - those with highly developed urban areas and economic and population growth rates above the national average. It has built some 31 million square feet (2.9 million square meters) of housing in Chengdu, Hefei, Jinan, Kunshan, Suzhou, Xuzhou and Zhengzhou.

Xinyuan reported third-quarter net income of $31.9 million, or 44 cents per American depositary share, up from $31.2 million, or 42 cents per ADS, in the third quarter of 2011. Revenue was $226.1 million, a 6 percent increase from the same period a year earlier.

The company bought more than 1.15 million of its ADSs on the open market at a cost of $3.2 million, through a $20 million share-buyback program announced in this year's second quarter.

Amid current ownership restrictions in China, "the US will likely remain comparatively attractive in 2013 and draw more Chinese investment, from State firms, from private real estate developers, and from individuals," said Derek Scissors, a senior research fellow who specializes in Asia at the Heritage Foundation, a right-wing think tank in Washington.

"US real estate has been profitable since late 2009 and should remain profitable in 2013," he said.

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