Poly Global announced on Sunday that it will make available for purchase a 49 percent stake in its A$300 million ($215 million) Poly Centre development in central Sydney, as the Australian real estate arm of state-owned defense conglomerate China Poly Group prepares to begin construction of the trophy project.
The partial sale of its first commercial development in Australia would allow Poly to consider a wide variety of projects for acquisition, and gear up its asset management business, according to a company press release.
Poly’s search for a partner in developing the site along Circular Quay, which it purchased for A$160 million in 2016, comes as the top five mainland developer comes to grips with a tighter lending environment at the same time that Australia’s slowing housing market has pushed the company away from the fast cash of condo construction into more capital intensive commercial projects.
Hunting for Partners as the Market Slows
The company is actively looking for investments in Queensland and other Australian markets, according to Poly. “An increasing number of potential investors have approached Poly to invest in projects – both international and local, while at the same time, a number of asset portfolios have been put on the table for Poly to consider,” said the company.
According to the statement, “the move will not affect Poly Australia’s position in developing and co-owning the development,” set to launch in 2021.
The cash flow generated by the potential stake sale could help the firm finance the project, as important voices in media and finance warn that the country’s credit squeeze could turn into a credit crunch after the tightening of expense assessments in the third quarter of last year cut borrowing capacity by 7 to 10 percent for owner occupiers, and by 20 percent for property investors, according to Swiss investment bank UBS, quoted in the Sydney Morning Herald. There is is likely to be a further substantial tightening in maximum borrowing capacity to come, the bank added.
A tighter credit environment, suggests that potential buyers of Poly’s residential projects will have a harder time financing their purchases, reducing the company’s available capital. While Poly does not regularly disclose sales numbers for its Australian operation, harder-to-obtain money has already impacted Sydney’s broader house market, where an 85 percent increase in house prices from 2012 to 2017, has given way to the largest quarterly fall in 14 years in the third quarter of the year. Sydney has now entered into full correction territory, said CBRE, with price further price, falls of 15 to 20 percent likely.
Ready to Start Building
Poly’s Circular Quay project, which is located on George Street East in the centre of the city, is due to begin construction within the next few weeks following demolition of an existing building.
When completed, the 15-floor structure, located two minutes away from One Circular Quay, will have 16,000 square metres (172,222 square feet) of office space and 1,000 square metres of retail space on George Street.
The mainland developer purchased the site, which combines a set of adjacent properties acquired from local investment group Anton Capital and Goldman Sachs, for A$160 million in 2016.
Poly is also reaching some milestones with other Australian projects as media reports two weeks ago indicated that the developer will abandon plans to redevelop a 2,047 square metre site near Melbourne’s Epworth Richmond Hospital that it acquired in 2016 for $15.5 million into condos, in favour of constructing a commercial building on the site, according to the Urban Developer.
The adjustments in Poly’s plans come as other Chinese developers, including Golden Age Group and Woodlink, recently withdrew from close to $1 billion in residential projects in Melbourne, the Urban Developer reported last week.
Poly Plows Ahead Down Under
Despite the changes in plans, Poly appear to be moving ahead with plans to establish a portfolio of Australian projects.
A month ago, the company announced the acquisition of a second 4,000 square metre plot of land in the Melbourne suburb of Richmond, which will include 200 square metres of retails space, according to the Australian Financial Review. Earlier this month the developer was reported to also be seeking to shift that project from residential to commercial use.
Poly Australia has invested more than A$800 million since 2014 acquiring land and developing its current portfolio. In four years, the firm has built a $2 billion pipeline in the country, predominantly in Melbourne and Sydney, in line with its goal of becoming Australia’s third largest property developer in the next decade.