China’s R&F Buys London Site for $74.8M Despite Capital Controls

Guangzhou R&F Properties has jumped into the UK market for the first time by acquiring a 5.5 acre (2.2 hectare) London residential site for £60 million ($74.8 million) from local real estate player Minerva, according to statements from R&F and accounts in the London press.

Minerva sold the project to R&F after consolidating site into a pair of freehold parcels for what is said to be a £500 million ($623 million) development project. Development approval has already been granted for construction of as many as 1,088 homes in the town in south London, according to local press accounts.

“As a newcomer to the UK market, we are excited to bring our expertise and enthusiasm to this significant town centre scheme,” R&F representative Xia Ning said in a statement. “We aspire to provide positive real estate schemes across the world and look forward to working closely with the local community, businesses and stakeholders, to deliver the most appropriate scheme for the benefit of the borough.”

R&F’s maiden foray into the UK comes soon after the Hong Kong-listed home builder had complained that China’s capital controls had cut off funding for its ventures in Cambodia and Africa, as part of a central government clampdown on cash outflows from the mainland’s controlled economy.

Minerva Cashes in on Chinese Interest

The decision by R&F to take on the London market gives a neat exit opportunity for Minerva, which had paid London’s L&G Investment Management £10 million for one of the two component parcels, which includes the St George’s House office tower, in 2015.

“Having spent the last couple of years investing in the overall Queen’s Square site, we now believe this is the right time for another party to deliver this vitally important project for Croydon,” a Minerva spokesman said of the transaction.

Minerva added that, “The St George’s House planning permission has been implemented, existing Section 106 Agreement revised and a masterplan has been prepared and discussed with Croydon Council. It will now be for R&F Properties to consider the most appropriate way to bring the scheme forward, however we have no doubt the result will be something the town can be proud of and we look forward to following progress, whilst we focus on our other land holdings in the area.”

Real Estate Deals Yes, Chromium Mines No

While R&F’s demonstrates an ongoing interest by Chinese buyers in London assets post-Brexit, should the company be able to implement this London real estate investment, it may say more about China’s vision of “rational investments” and the way in which authorities in Beijing plan to enforce the country’s capital controls.

Earlier this month R&F, which is one of China’s more aggressive foreign investors, had publicly pleaded for government support in providing access to $1 billion in foreign exchange for two projects outside of its core business, saying that the transactions were endangered by the company’s inability to transfer funds out of the country.

In a rare public comment on a specific case of an investor being denied access to foreign exchange, Zhang Li, founder and co-chairman of Hong Kong-listed R&F Properties told the South China Morning Postin Beijing on Sunday that its deals to acquire a chromium mine in Angola and to develop an agricultural program in Cambodia were endangered by not getting access to funds, and argued that an exception be made for their case.

R&F’s complaint came at approximately the same time that Dalian Wanda’s attempted $1 billion acquisition of Hollywood’s Dick Clark Productions foundered, also due to an inability to transfer funds out of China. Wanda’s attempted acquisition of the TV production house represented a departure from the company’s history as a mall developer, and had also been criticised for being overpriced.

“Big and Good Overseas Projects”

China’s capital controls, meant to put an end to what the central authorities referred to as “irrational deals,” have had dramatic effects on China’s purchasing of overseas assets, with outbound investments in real estate deals plummeting 74 percent at the start of the year, by some measures.

Before R&F struggled to pay for their African and Cambodian projects, Zhang Li, founder and co-chairman at R&F, commented at the Chinese People’s Political Consultative Conference in mid-February that the authorities should make exceptions to the capital controls  for “big and good overseas projects” that are in the public interest, such as those that align with the One Belt, One Road project.

R&F’s larger neighbor from Guangzhou, Country Garden Holdings, was also tripped up by China’s capital controls, when it was forced to close mainland sales offices for its Forest City project in Malaysia.