July 1, 2014

Developers Are Facing The ‘Guillotine’ In China

The Herald Sun reports on China. “The Communist Party’s flagship newspaper on Monday warned foreign investment banks, speculators and domestic property developers from taking ‘overly pessimistic views’ about the housing market. A commentary in the overseas edition of the People’s Daily warned there were individuals with ‘ulterior motives.’ The purpose of these pessimistic comments is ‘to pressure the government into loosening home purchase restrictions, ease credit and launch other moves to rescue the market so that developers can continue to benefit from high property prices…,’ the commentary said.”

“The overseas edition of the paper also criticized those who hoard apartments–adding that many of those who have been negative publicly are actually trying to buy up property at the market bottom. ‘It is a trick they have been using for years and it’s no longer surprising,’ the paper said.”

The Epoch Times. “Across China, real estate developers are scrambling to get rid of inventory, resorting to unorthodox sales techniques that suggest a deep concern about the future. Li Junheng, an analyst of the Chinese economy with Warren Capital based in New York City, said in a recent newsletter that the ‘biggest cities including Shanghai are seeing price reductions both inside and outside the Inner Ring Road by 2–3 percent and 8–10 percent respectively.’”

“The newsletter also said that the slowing economy has led high-end retailers to stop opening new stores in shopping malls, while major real estate projects are discounting to the tune of 50 percent. Even the ever-confident VIP gamblers who travel to Macau’s casinos have slowed to a trickle. ‘We think that the market dynamics are significantly different from 2008-09 … and 2012 … in that the market is seeing a fundamental and structural surplus and low consumer sentiment,’ she wrote.”

From Bloomberg. “China’s project to build a replica Manhattan is taking shape against a backdrop of vacant office towers and unfinished hotels. The skyscraper-filled skyline of the Conch Bay district in the northern port city of Tianjin has none of a metropolis’s bustle up close, with dirt-covered glass doors and construction on some edifices halted. ‘Investing here won’t be better than throwing money into the water,’ Zhang Zhihe said during a visit to the area last week from neighboring Hebei province to look at potential commercial-property investments. ‘There will be no way out—it will be very difficult to find the next buyer.’”

“The company has 20.7 billion yuan of debt due in 2014, almost triple 2013’s amount. Another 13.9 billion yuan is due next year. Wang Wei, a 34-year-old Tianjin resident, was driving through the area to check out property prices, finding them six times higher than what he’d be willing to pay. ‘I’ve seen a lot of reports about the area, but apparently it’s not a place fit for home—at least for now,’ said Wang. ‘No shops, no schools, no hospitals and no neighbors.’”

The Wall Street Journal. “Suzhou, about an hour’s drive west of Shanghai, is suffering from oversupply in office buildings, especially in the Suzhou Industrial Park, said a survey of 107 respondents conducted in April and early May this year. The report cited an investor’s experience on a recent work visit to the Suzhou Industrial Park. ‘Our host joked that we were welcome to use office space in the same office building for free if we set up a company in Suzhou. There are so many empty office units in the building.’”

“More than two million square meters of office space are scheduled to be completed in the next two years, the report added. For Hangzhou, it’s the lackluster housing market that is pouring cold water on investment appetite. Property developers have introduced substantial price cuts on residential projects, driven by a need to cut down inventory as construction of homes outpaced demand in recent years. Shanghai-listed property developer Poly Real Estate Group recently put up red promotion posters around the city for Charming Land, one of its housing projects in Hangzhou’s suburbs. Poly is offering zero down payments, zero monthly payments and zero interest rates.”

Want China Times. “The government of Hohhot, capital of northern China’s Inner Mongolia autonomous region, has been relaxing its policies on purchases of real estate in an attempt to revitalize a stagnant market, reports the Chinese-language National Business Daily. In the first quarter this year, only 1,944 realty transactions were made in the city, representing a miniscule 0.37% of the total supply. Despite the dismal figures, new construction continues to fatten an already obese inventory.”

“As a less developed second-tier city, Hohhot, with a total population of 3 million and a registered population of 2 million, now has 120,000 unsold houses, said Zhang Dawei, chief analyst at Centaline Property. This guarantees 10 years of consumption, on an average of 1,000 sold a month. The problem is only aggravated by the prospect of 100,000 newly constructed houses during the same window of time.”

From China Daily. “Huang Xiaoyun, general manager of the Shanghai unit of E-house (China) Holdings Ltd, a real estate services company, said the supply-demand gap widened in May, citing figures from the 90 residential projects that he oversees in Shanghai. ‘Prices are still subdued. I’ve never seen developers openly advertising 5 percent price cuts,’ he said. ‘Buyers are also becoming more tough in bargaining. Some buyers are not even keen on property visits, unless the prices are reduced by 5 to 10 percent.’”

“Min Yuansong, co-president of Future Holding Inc, a real estate development and commercial brokerage firm, said that developers are facing acute cash flow problems, as borrowing costs have surged and buyers have to wait several months for mortgages. ‘In some third-or fourth-tier cities, developers are unable to bear the funding pressures,’ Min said.”

From NTD TV. “As of early May, Beijing had an inventory of more than 70,000 new commodity houses, Shanghai 65,987. That was a total of 10.26 million square meters of area, a new record high. Inventory in Shenzhen was also high, more than 50,000. As of early May, Beijing had an inventory of more than 70,000 new commodity houses, Shanghai 65,987. That was a total of 10.26 million square meters of area, a new record high. Inventory in Shenzhen was also high, more than 50,000. Many Chinese property developers achieved less than 30% of their target sales in the first five months.”

“Professor Wang Jianguo of Guanghua School of Management, Peking University, indicates the real estate market is down due to a lack of demand. Wang Jianguo: ‘As I know well, people used to call me and ask if there’s any house for sale. Now, they ask if there’s a need for housing.’”

“Economic commentator Niu Dao predicts the first ‘guillotine’ may take effect this September targeting the first-tier cities. Niu Dao: ‘This bubble is too big. The bubble exists in every city in China. It won’t target one particular city. It is a problem of currency. Too much money printing has ended up in real estate, and brought up the prices of real estate. Now that these funds are fleeing, the property has to be sold. But no one will buy it, because everyone is cutting prices. Now with the yuan down, many people quit the real estate market. Property prices are sure to fall.’”

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