April 28, 2014

After Touching The Ceiling

Xinhua reports from China. “Economists from China’s leading think tanks have dismissed predictions that a possible property meltdown would trigger a crisis or even a crash in the world’s second largest economy. ‘It can be said that China’s property bubbles are now the biggest risk in its economy, but bearish talk of a collapse of the whole economy smells of ulterior motives,’ Wang Xiaoguang, a researcher at the Chinese Academy of Governance, told Xinhua.”

“Jia Kang, director of the Research Institute for Fiscal Science at China’s Ministry of Finance, warned against the ‘divergence’ in China’s housing market. ‘In big cities like Beijing and Shanghai, the risks of the property market are not so big,’ Jia told Xinhua.”

From Reuters. “Prices of several residential properties on sale in China’s eastern cities of Shanghai and Hangzhou dropped sharply over the weekend, feeding industry speculation of a fresh round of price cuts by developers to boost sales, the Shanghai Morning Post reported on Sunday. The developer of a high-end residential property project on the outskirts of Shanghai on Saturday slashed average prices of a batch of homes on sale by 28 percent to 36,000 yuan ($5,800) per square metre amid sluggish sales, the newspaper reported.”

From East Day. “High-end residential market in Beijing experienced downturn in sales volume and price in the first quarter, fresh evidence of slowdown of the red-hot housing market, said the world’s leading real estate consulting company DTZ. The average high-end housing price in Beijing dropped by 5.45 percent quarter on quarter to 49,287.77 yuan (about 8,014 U.S. dollars) per square meter in the first quarter, according to data from DTZ. The high-end housing transaction volume in Beijing plunged by 23.85 percent quarter on quarter in the first three months.”

Want China Times. “The Hangzhou government announced that real-estate developers have to report to government agencies before making large price adjustments to houses on sale. According to government statistics, 10,112 residential housing units were sold between January and March this year in the city, a 37.8% plunge year-on-year. In the same period, the average selling price for residential units in the downtown area dropped to 15,388 yuan (US$2,467) per square meter, down by 11.3% from a year ago.”

“The number of available houses has reached a record high. As of March this year, 76,004 residential housing units were available for sale, an annual increase of 36.2%. Price competition in some areas of Hangzhou that have an excessive house supply is intense, which has hurt fair competition in the market. A real-estate agent said that in some areas, if one real-estate developer lowers prices, other real-estate developers will follow suit immediately.”

From ECNS. “Stringent bank loans since the end of last year have dealt real estate firms, medium- and small-sized ones in particular, a blow in securing their fund chain, said Hu Baosen, board chairman of Central China Real Estate Ltd. Among the 35 major cities surveyed by Centaline Property Agency Ltd., 25 have seen their banks suspend housing loans.”

“‘China’s property market is adjusting after touching the ceiling, and the extent of adjustment will go beyond the anticipation,’ said Tian Ming, board chairman of Landsea Group. ‘No property enterprises, big or small, are safe,’ Tian said.”

From IFR Asia. “Chinese banks are cutting their exposures to risky borrowers amid fears of increasing default rates in a move that threatens to trigger a wave of bankruptcies across the country. ‘Since the beginning of this year, we have stepped up efforts to stop rolling over loans to risky borrowers in underperforming industries,’ said a banker in the credit-approval department at Industrial and Commercial Bank of China’s Zhejiang branch. ‘We expect more defaults this year and, so, need to tighten credit-risk control.’”

“As banks stop rolling over troubled loans, however, they are forcing hundreds of companies in these industries to shut down, according to Robert Davis, senior portfolio manager of INGIM emerging markets high yield dividend fund, who went on an investment trip to China in March. ‘We heard many smaller companies are failing due to a liquidity crunch and we expect the situation to worsen,’ he said.”

“‘It is increasingly the case of ‘we want to get back loans and stop renewing as much as possible to risky industries,’ said a Hangzhou-based loan banker from Evergrowing Bank, a medium-sized joint-stock commercial bank. ‘A further uptick in bad loan rates could wipe out most of the bank’s profits,’ she said.”

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