September 28, 2016

No Bubble Has A Happy Ending

A report from Mingtiandi on China. “It may have seemed like an attack by the undead, but a crazed mob that tore the doors off a Hangzhou real estate office last weekend came in search of apartments, not human flesh. When homes went on sale at the unnamed property firm in the capital of Zhejiang province on Saturday, the crowd that had gathered outside could not wait for company employees to finish letting them in and instead tore the company’s doors from their hinges, and knocked each other down, in a rush to get in on the perceived bonanza.”

“The incident, which was filmed on company security cameras, quickly found its way onto Chinese social media, where the country’s always active netizens voiced a range of interpretations of the buying frenzy. The crowd of what one online commentator described as ‘zombies’ appeared to be undeterred by the home purchase restrictions put in place by the local government less than one week before. The housing rush – as well as the intended cooling measure – came after prices in Hangzhou have jumped 22 percent in the last year, with values in August rising some 7.9 percent compared to July, according to China’s National Bureau of Statistics. The city, which has now seen home values rise for 16 straight months, is one of many Chinese second-tier communities to see a rapid upswing in housing prices in 2016.”

“While the reaction of the city’s home buyers seems extreme in this case, the condition of Hangzhou’s housing market appears to be typical or even relatively stable for a Chinese second-tier city. In Nanjing, the cost of home is now up by more than 36 percent compared to 12 months ago, while in Xiamen the one year differential is over 44 percent.”

Business in Vancouver. “Authorities in Shenzhen, a city in China’s Guangdong Province, have invalidated the sale of a series of tiny 6 square-metre flats (approximately 65 square feet) costing 880,000 yuan (around $175,000 Canadian) each, saying the properties violated existing laws and regulations. The move came after an online outcry after local media reported that 11 mini studio apartments located in the 15-storey Qiaocheng Shangyu building in the city’s Nanshan district, sold out in half a day on Saturday.”

“A statement released on the commission’s official microblog said the reports that 11 of the apartments were sold was false news spread by four local property agencies. Only four apartments had been sold before the official investigation began, the statement said. The building is located on Shenzhen’s Xinzhong Road next to Baishizhou community. On the streets of Baishizhou pedestrians dodge passing cars and bikes amid rows of ‘handshake’ buildings where neighbours can reach out of their windows to greet one another.”

“‘The living and hygiene conditions are not good here, but property prices nearby have been soaring to over 70,000 yuan [per square metre],’ said a local resident. Shenzhen citizens now spend an average of 4.2 million yuan (around $835,000 Canadian) on buying their first apartment, an increase of 75% from the average 2.4 million yuan paid in 2013, according to Centaline Property.”

From “It appears love doesn’t conquer all in China, well not the property market anyway. Pictures have emerged of Chinese residents queuing up to file for divorce in Nanjing province following rumours of a tightening of property buying regulations. With residents worried about married couples having to pay a larger deposit and a limit on how many properties they can own, some have chosen to divorce so they can buy property as two singles instead.”

“The latest Global Property Guide said demand in Shanghai was rising strongly. ‘In June 2016, the value of Shanghai homes sold rose 22 per cent from a year earlier, after a year on year rise of 32.9 per cent the previous month,’ it said. The report said despite a surge in demand in some cities, there was quite a bit of oversupply in other areas. ‘Currently, unsold homes are estimated at around 13 million,’ it said.”

From Bloomberg. “Here’s the latest uncertainty facing China’s currency: sky high house prices. A runaway boom in the largest cities will push investors to look for cheaper alternatives overseas, draining money out of China and putting downward pressure on the yuan in the process, according to analysis by Harrison Hu, Chief Greater China Economist at Royal Bank of Scotland Group Plc. in Singapore.”

“‘It’s commonly believed that China’s policymakers will sacrifice the yuan exchange rate to avoid a sharp correction in domestic property prices, as the latter will more significantly derail China’s economy and the financial system,’ Hu wrote.”

“That’s because the importance of the property market in the world’s second largest economy far outweighs many sectors, including the stock market. A real estate crash in China could have far reaching consequences and it would be a long time before investors regained their confidence, according to Hu.”

“That will put policy makers in a very difficult position. While the government has some cards in its hand, such as an ability to control land supply and enforce curbs on new home-buying, history shows that some tightening measures risk backfiring and only stoking speculative behavior such as ‘panic buying’ like that seen in Shanghai earlier this year.”

“Besides, the regulator’s handling of last year’s stock market turmoil did little to inspire confidence in the government’s ability to oversee the bubbly housing market. ‘No bubble has a happy ending,’ Hu wrote.”