March 3, 2014

Sounds Of Collapse

The Property Report looks at Honk Kong. “As Hong Kong’s high-end property market continue to struggle due to government cooling measures and surging constructions costs, developers are luring first-time, middle class buyers with lower rates and immediate move-in schemes. Sun Hung Kai, one of the mass-market Hong Kong developers facing fiercer competition next year when new housing stock reaches its highest level in eight years, is implementing an uncommon ‘move-in, pay-later’ tactic, offering buyers up to 540 days to make their initial payment.”

“Another firm, Henderson Land Development, has launched new homes starting at HKD6 million (USD773,000), which is considered very reasonably priced, and gave up to 28 percent discounts in one project. Property prices have increased by about 120 percent since 2008 in Hong Kong—one of the most expensive markets in the world—and buyers are on the lookout for more affordable investments, forcing developers to give discounted rates to meet sales projections at the cost of lower profits, according to Reuters.”

From Focus Taiwan. “At the base of social concerns today are a lack of confidence in the economy and a pessimism about the future. The first step to resolving public discontent is making the notion of ‘housing justice’ a reality. The numbers show it all. The house price-to-income ratio for all of Taiwan has shot up since the financial crisis, from 7.1 in 2007 to 9.2 in the third quarter of 2013. In Taipei, it’s significantly more severe; New Taipei City’s ratio leapt from 7.1 to 11.4, while Taipei City’s skyrocketed from 8.6 to 14.7.”

“A local magazine broke the numbers down further based on figures from 2012. The average dual-income family in Taiwan would have to put their entire salaries aside for 35 years to buy a home in the capital, where a 40-ping (132 square meters) home goes for around NT$35 million (US$1.16 million). For couples on Taipei salaries, it’s marginally better: they only have to stop eating, drinking, and spending on anything else for 27.5 years to buy a home.”

Gulf News on China. “Real estate investors felt deeply insecure and murmured their protest when a bunch of developers, this week, offered heavy price discounts to new buyers in the wealthy Zheijiang province of East China. Under pressure of severe oversupply and high inventory, developers in smaller cities of China have begun discounting home prices, triggering instant panic at the stock market.”

“All big property developers of Hangzhou joined the price war, slashing anywhere between 2000-4000 yuan per square metre. In Changzhou city in neighbouring Jiangsu province, a developer announced a 40-percent discount last week. Real estate inventory in cities like Hangzhou had reached a whopping 113,000 units by the end of 2013, and the problem is similar in many second- and third-tier cities.”

“Irrational fears gripping the stock market over a cooling property sector are exaggerated. China’s property market might have outgrown its boom days, but fears of imminent bubble burst and economic crash are premature.”

Want China Times. “The city of Hangzhou in eastern China’s Zhejiang province may follow in the footsteps of neighboring Wenzhou to see a downturn in the housing market after several developers cut prices of units in residential projects at the beginning of the year, reports Guangzhou’s 21st Century Business Herald. The price cut announced for two residential projects in Hangzhou on Feb. 18 and 19 shocked the local property market, with its impact being felt across China, the paper said.”

“The number of new houses is expected to surge further since over 100 new projects are set to hit the market later this year, offering more than 100,000 new units. Meanwhile, local realtors estimate that over 100,000 previously owned houses are available in the market, another record high. The mounting inventory is a result of the local government’s massive sale of land use rights, the paper said.”

New Tang Dynasty on China. “CCTV financial commentator: ‘I went to some counties and cities in Yangtze River Delta, including Hangzhou, Yiwu, and Jinhua. The property market is really poor, they are not wanted. The second-hand property market is a mess too.’”

“It is understood that after the Chinese New Year, DeXin-Beihai park real estate in north Hangzhou city cut prices by 3,200 yuan. A nearby estate in Tianhong Champs had a 3,400 yuan cut. Subsequently, eight more properties in Hangzhou made various price adjustments. Yang Bin, economist: ‘In fact, a 50 percent price cut is still a bubble. People cannot afford it. Average housing prices are still the highest in the world, higher than even New York.’”

“China’s currency - the Yuan, also called the Renminbi - hit a historical low of 6.04 against the dollar last month. In just ten business days, the Yuan has dropped by more than 2 percent against one US dollar, noting that China’s currency only rose by 2.9 percent during the whole year of 2013. The New York-based Goldman Sachs Group released a report on Feb 21. The report said, ‘Ghost towns, local debts and trust sector crisis’ caused the slump in Yuan.”

“There were even recent reports saying over 60% of housing prices in Shanghai had dropped. The discounts reached 10% in some places, a level far beyond that in 2013. Some people said they had heard ’sounds of collapse’ in China’s housing market.”

“Xie Tian, Professor at Aiken Business School, University of South Carolina: ‘In fact we know that a large fraction of that hot money is from the CCP itself. The party bigwigs circulate their money bank to China.’ Xie Tian said, China’s housing bubble will definitely burst in a long-term view. Once that occurs, a consequent huge slump in the Yuan is unavoidable. Xie Tian commented that the CCP took power with lies and violence back in history and now tries to maintain its regime with the same means. Therefore, it can hardly keep its governance once losing control over the financial market, currency and land trade.”

The Financial Review on China. “In a dusty valley in central China at the end of a winding dirt track, 20 half-finished apartment blocks rise up from the mud. Chinese characters etched into the mountainside proclaim this isolated 10 billion yuan ($1.8 billion) development project will ‘change the world.’ And just 12 months ago, teams of workers toiled around the clock to create the new metropolis, fortified by giant slogans urging them to ‘bleed, sweat but don’t cry.’ Now a single builder is left at the desolate site. He tells AFR Weekend that construction should have been finished more than a year ago but the money has dried up and all 800 workers left in search of a paying job.”

“This abandoned and eerie construction site is ground zero for China’s fast-growing ’shadow banking’ system. It is one of the biggest risks lurking in the ­global economy. ‘This is no different from the sub-prime crisis [in the US],’ says David Cui, who has published extensive research on the issue for Bank of America Merrill Lynch. Except that in China, it is highly leveraged companies rather than households causing the problem.”

“In keeping with the US sub-prime mortgage crisis analogy, Liulin is the equivalent of Florida or Las Vegas – a vulnerable pocket where the bad loans start and potentially spread to the rest of the country. The town’s fortunes reversed in line with the national steel industry and, unfortunately, it happened just when all of the debts became due. Cash flow problems are on display everywhere in Liulin.”

“One former coal truck driver says that during the town’s heyday he was paid up to $1800 a month, but he quit last year to work for a taxi company when his salary dwindled to less than $450. To emphasise his point, he drives past an empty loading dock which, he says, used to be crowded with trucks at this time in the morning, just two years ago. In a worrying sign for the town, the driver says that among the local miners, Liangsheng is not in the worst shape. Workers at a nearby mine owned by Hongsheng Energy Group claim they haven’t been paid in eight months.”

“Sooner rather than later there will be a default, says Cui. At first, the market won’t be too worried about contagion, but then ‘there will be more and more defaults which chip away at confidence,’ he says. ‘At a certain point, something happens and people lose confidence and then we have a credit crunch in the system.’”

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