Trophy hunt

China's real estate trophy hunt has further to run

Another New York landmark has fallen into Asian hands. The Waldorf Astoria hotel, home to visiting presidents and the backdrop to countless movies, has been sold to a little-known Chinese insurer for $1.95 billion. The deal invites inevitable comparisons with Japan's US real estate binge of the 1980s. But if China follows the same path, the trophy hunt may only be just beginning.

The sale of the Waldorf is the latest in a series of Chinese deals. Last year, a consortium including property tycoon Zhang Xin bought 40 per cent of the GM Building, a few blocks north on the corner of Central Park. Conglomerate Fosun now owns the former Chase Manhattan headquarters, near Wall Street. And Chinese buyers accounted for almost a quarter of foreign residential purchases in the United States in 2013, according to the National Association of Realtors.

America has seen this before. In the 1980s, cheap credit and a strong yen powered a Japanese buying spree that peaked with the purchase of New York's storied Rockefeller Center. By several measures, however, the splurge was much larger. Outbound direct investment from Japan reached 2.2 per cent of Japanese GDP in 1989. That year, a staggering 13 per cent of the country's overseas investment went into North American real estate.

By comparison, China is being restrained. Non-financial outbound investment from the People's Republic was $90 billion last year, less than one per cent of GDP. A little over $2 billion went into US entertainment and real estate, according to figures compiled by the Rhodium Group. Official statistics are incomplete, as many buyers funnel cash through offshore financial centres. Even so, it seems that China has some way to go before it repeats Japan's excesses.

It's not clear how Beijing-based Anbang Insurance, the Waldorf's new owner, justifies an investment which values each of the hotel's 1,400 rooms at almost $1.4 million. The unlisted group claims to have assets worth 700 billion yuan ($114 billion) and describes its strategy simply as "win-win". Anbang will hope to avoid the fate of Rockefeller Center, which collapsed into bankruptcy in 1995. If Japan's experience is any guide, it will at least have plenty of company.