The Property Mania Needs Pains To Ease
Reuters reports on China. “Government officials told Reuters on Tuesday that Zhejiang Xingrun Real Estate Co, based in the coastal city of Ningbo in Zhejiang province, is on the brink of bankruptcy. State media have estimated the company owes 15 domestic banks 2.4 billion yuan ($389 million) and individual investors another 1.1 billion, with only 3 billion yuan of assets on hand. By raising that money from individual investors, Zhejiang Xingrun’s owner also broke Chinese law, and local officials told Reuters that the company’s owner and his son are in custody, accused of illegal fundraising.”
“Some industry observers noted growing instability among a group of Chinese property developers, in particular those that overindulged in speculation financed by money borrowed at high rates in the shadow banking market.”
“‘Underground private banks are very active in the Zhejiang and Jiangsu areas, and many companies have already gone bust because their owners personally borrowed a lot from these underground banks and then were not able to repay,’ said an executive at a real estate developer with projects in eastern China, who spoke on condition of anonymity. ‘We have been hearing a lot of cases like this but this one is of a much larger size,’ he added. ‘I think by letting this news go public, the government wants to send a message to the market.’”
The International Business Times. “The risk is particularly high in third- and fourth-tier cities, which accounted for 67 percent of housing under construction in China in 2013, according to Nomura economist Zhiwei Zhang. ‘This risk does not seem fully recognized in the market partly because data are not readily available for these cities, and some investors may be misled by the boom in first-tier cities,’ he said, adding that most investors aren’t aware that first-tier cities (Beijing, Shanghai, Guangzhou and Shenzhen) only account for 5 percent of housing under construction.”
“Zhang describes real estate as ‘a pillar of growth for China’ that makes up 16 percent of the country’s gross domestic product, accounts for 33 percent of fixed asset investment, 20 percent of outstanding loans, 26 percent of new loans and contributes 39 percent of government revenue, based on 2013 data. ‘If it slows sharply, we see no obvious replacement to support growth,’ Zhang said.”
The Telegraph. “The Chinese newspaper Economic Daily News said Xingrun Properties, in the coastal city of Ningbo, is on the brink of collapse with debts of $570m, mostly owed to banks. The local government has set up a working group to contain the crisis. Nomura said the number of ghost towns has spread beyond the well-known disaster stories of Ordos and Wenzhou to at least eight other sites. Three developers have abandoned half-built projects in the 2.5m-strong city of Yingkou, on the Liaodong peninsular. They have fled the area, a pattern replicated in Jizhou and Tongchuan.’
“Yu Xuejun, the Jiangsu banking regulator, said developers are running out of cash. This risks undermining land sales needed to fund local government entities. ‘Credit defaults will definitely happen. It’s just a matter of timing, scale and how big the impact is,’ he said.”
From Xinhua. “This week’s property data may cheer up desperate buyers tortured by unaffordable housing prices. The sales value of residential homes in China dropped 5 percent year on year to 598.5 billion yuan (97.56 billion U.S. dollars) with the amount of floor space sold also down 1.2 percent in Jan.-Feb. 2014, according to data released by the National Bureau of Statistics. Property developers’ investment in residential property grew 18.4 percent.”
“‘Housing prices surged too fast last year, especially in first-tier cities, which curbed the demand for investment and non-investment,’ said Wang Xiaoguang, a researcher at the Chinese Academy of Governance. Wang said he believes that this year will witness a turning point in the real estate industry to put a full stop on the previous housing boom. ‘Tightened credit policy, strained consumer demand and large inventory of unsold houses will create a period for the industry to cool down and adjust,’ Wang said.’
“Zhu Zhongyi, deputy head of the China Real Estate Industry Association, estimated that the slowing economy will further push the real estate sector onto a smoother and more rational path. ‘The property mania needs pains to ease,’ Wang added.”
The Global Times. “Many real estate companies have lowered prices or launched promotions for homes in Guangzhou, Beijing-based Economic Information Daily reported Monday. This is the first sign that first-tier cities in China have started to see home price drops. Zhu Zhuohan, regional manager of real estate consulting firm Centaline Property’s branch office in Guangzhou, told the Global Times Monday that many local property developers have even rolled out direct price cuts. Guangzhou-based Times Property, for instance, is now offering a 12 percent discount for all its houses in the city.”
“‘Guangzhou’s current average home price per square meter has dropped by 10 percent from January this year,’ Zhu said.”
The Standard. “Beijing officials are dumping their properties as they now need to report the number of flats they own. Units at the latest project of the nation’s largest developer, Vanke, meanwhile, are carrying lower-than- expected price tags, putting heavy pressure on the capital’s property market. A growing number of homes in Beijing are priced lower than the market with owners in a hurry to sell, the 21st Century Business Herald reported.”
“Last weekend, a Vanke project in Beijing Daxing District, which is located in southern suburbs of the city, opened the sale at a price 3,000 yuan (HK$3,763) per square foot lower than market level. Last Saturday, a flat in northeast Beijing was sold for 300,000 yuan less than the market price. ‘The owner didn’t show up, authorizing a friend and an agency to make the deal. It is understood the owner was an official,’ the report said.”
From Forbes. “There’s more financial destruction power in these 12 words in quotes below than just about any in the English language: ‘Subprime risks are contained.’ Ben Bernanke 2007. ‘Risks in China’s bond market are generally controllable.’ Zhang Xiaojun 2014. The recent statements from Chinese leaders singing the same sad song we’ve all heard before so many times. Do you actually believe 13 guys in a room in Beijing can negotiate a soft landing in the most leveraged economy on earth?”
From Hong Kong:
‘The local high-end home market remains disappointing to owners as flats are being offloaded at losses of up to HK$3 million. A 1,137-square-foot unit at Celestial Heights in Ho Man Tin changed hands yesterday for HK$18 million, or HK$15,831 per sellable sq ft. The selling price was 4 percent below HSBC’s valuation.’
‘The owner of the four-bedroom apartment paid HK$20.28 million for it in September 2010. Taking the reduced selling price and stamp duties and other fees into consideration, the vendor suffered a loss of up to HK$3.32 million.’
‘This came just a few days after another 1,592 sq ft unit at the same 80 Sheung Shing Street development sold for HK$23.5 million - a paper loss of HK$1.05 million.’
There’s more at the link. They report on this stuff like each loss is a car wreck or something.
“Do you actually believe 13 guys in a room in Beijing can negotiate a soft landing in the most leveraged economy on earth?”
Which begets the question; Do you think 12 FedRes disciples in a room can manipulate and avoid becoming a casualty as result of the most leveraged economy on the planet collapsing?
We know that answer.
Get out of debt, shed depreciating assets and conserve cash. You’re going to need every penny of it.
Which begets the question; Do you think 12 FedRes disciples in a room can manipulate and avoid becoming a casualty as result of the most leveraged economy on the planet collapsing?
We know that answer.
You are right someone is going to get crucified. But the bankers will get their thirty pieces of silver or gold.
Can someone help out and provide an analysis of how the bubble collapse in China will affect the “Cheap junk at walmart” retail sector?
On one hand, failing speculators will need dough. So they’ll channel stuff (like GM) our walmarts with plastic wall mounted singing bass fishes. The last mfgr jobs in the USA will be outsourced.
On the other hand, the stiffed creditors will need dough. So prices will have to rise at Walmart, and the aisles will quite possibly empty. Hiring boom in mfgr jobs in the USA.
On the third hand, economic collapse can happen in localized areas. So when it turns out the CFO of the plastic wall mounted singing bass fishes was storing the companies net worth in smog encrusted unaffordable bubble priced condos; aka the company is now bankrupt and the doors will be chained shut. This will make an interesting supply shock. The world can live without the Chinese made toy aisle at walmart. However, we no longer have the ability to make our own shoes, and ramping up production will take a long time, maybe a year or two, while the product has been “value engineered” to only last six months. My wife having 50 pairs of shoes will be OK. Being a typical guy I own one pair per “task” so I’m screwed. This is all amusing with shoes; what happens with washing machines, industral machines, electronic components?
On the fourth hand, the behavior of authoritarian non-rule of law economies is to not mess with the goose that lays the golden eggs. And nothing lays golden eggs like a corrupt financial system during a credit bubble (See USA, CA, IL, NY, AK, LA, etc). And now thats over. So, time to slaughter the goose to get what you can. Yeah you paid me $1 of protection money aka tax last year. What you say instead of $2 this year you’ll only have fifty cents? Well, I’m getting my two bucks one way or another, and if it means you lose ownership blah blah blah. So in this model, for example, the GE medical imaging headquarters which recently moved from the quisling states of america to China, might very well get nationalized, including all their Intellectual / Imaginary Property. Wouldn’t that be exciting?
My wife having 50 pairs of shoes will be OK. Being a typical guy I own one pair per “task” so I’m screwed.
Sorry she will feel the deprivation before you. As a guy, you have no trouble with banged up shoes for a while. She will need a new pair of shoes for some reason within a month. You are thinking like a guy when you consider her “needs”.
“Zhang describes real estate as ‘a pillar of growth for China’ that makes up 16 percent of the country’s gross domestic product, accounts for 33 percent of fixed asset investment, 20 percent of outstanding loans, 26 percent of new loans and contributes 39 percent of government revenue, based on 2013 data. ‘If it slows sharply, we see no obvious replacement to support growth,’ Zhang said.”
Is a hard landing on the horizon, or can China keep building never-to-be-occupied ghost cities forever?
=skate board parks for 5th yr american”students”
“can China keep building never-to-be-occupied ghost cities forever?”
Not so well with the developers in debtor’s prison.
You don’t just not pay your debts in China.
Not so well with the developers in debtor’s prison.
There you go the answer to the problem, you put a few extra locks and bars on the doors and windows and covert the buildings to debtor’s prisons.
autocorrect again covert=convert.
“Housing’s ‘Shadow Inventory’ Still Haunts Banks”
http://news.yahoo.com/housings-shadow-inventory-still-haunts-banks-152949909.html
With 25 million excess, empty and defaulted houses on the horizon, the risk of losses buying a house at current grossly inflated asking prices of resale housing is massive.
BEWARE
Remember….. A ‘housing recovery’ is falling prices to dramatically lower and more affordable levels, by definition.
“Countless homes remain vacant nationwide — but some cities see it as an opportunity to remake themselves”
http://www.salon.com/2013/10/05/abandoned_homes_are_the_future_imaginative_ideas_turn_blight_into_beauty/
The Money Quote:
“In reality, countless homes remain vacant in both cities and suburbs. Over 10 percent of the 132 million housing units in the U.S. – 14 million homes – were vacant in 2011.”
Add another 10 million and we’ll start getting closer to the truth……. with another 35 MILLION that just began to empty as boomers expire.
Alexandria, VA Housing Prices Crater 16%; Inventory Explodes 41%
http://www.movoto.com/alexandria-va/market-trends/
price per sq ft
http://www.movoto.com/alexandria-va/market-trends/#city=&time=2Y&metric=Median%20%24%2Fsqft&type=0
Why wouldn’t a 20+ year old house cost less than a new one?
Why wouldn’t a 20+ year old house cost less than a new one?
Just playing devil’s advocate, and full disclosure I have not really represented the devil although I do have his retainer:
They were not built by unskilled illegals and might actually have quality materials in them?
Both are built to code irrespective who assembled/installed the materials.
N Bethesda, MD Housing Prices Collapse 35% YoY; Inventory Skyrockets 69%
http://www.movoto.com/north-bethesda-md/market-trends/
Fairfax, VA Housing Prices Crater 19% YoY; Inventory Up 30%
http://www.movoto.com/fairfax-va/market-trends/
‘Xinhua.‘The property mania needs pains to ease,’ Wang added.’
From what I’ve read, Xinhua is the state media mouthpiece in China.
There’s several things going on here. The currency is suddenly being allowed to float. Interest rate “liberalizations.” They’ve shut down cash card transactions. And this:
‘China’s central bank has recently released an order that will put a stop to all online mobile payments units of companies that are using QR codes to send and receive funds. To many, this abolishing of payments though QR codes has come out of nowhere.’
has come out of nowhere That’s Chinese for “nobody could have expected this”
‘As for bank assets, they stand at a staggering $25 trillion, or 265 percent of GDP. While bank “assets” sounds great, the intricacies of double-entry bookkeeping show a liability for every asset. And since most of the bank assets are effectively owned by the central government, the central government is liable for this 265 percent of GDP in debt.’
‘No harm done, if the assets are of good quality, right? And that’s exactly the problem. They are not.’
‘As for claims on collateral, the coming default of a shadow-banking vehicle called Magic provides some real-life evidence what happens when the house of cards actually collapses.’
‘According to Chinese media reports, the property developer in Chongqing will likely default on $32 million of debt on March 31.’
‘The trust company that arranged the loan tried to get its hands on the collateral (an office building in the city) but could not, for reasons unthinkable in the Western world: Magic had already sold the building and mortgaged it to more than one other party.’
That’s a little more serious than borrowing against a bar of copper several times.
‘Magic had already sold the building and mortgaged it to more than one other party.’
How many mortgages can be supported by the collateral in one building?
The quantity is infinite with Magic mortgage manufacturing.
Ben
Great stuff this morning. Downtown Los Angeles is booming in 97 new projects, mostly Chinese and So Korean backed skyscraper apts and condos.
I am more enamored with the Adaptive Use Ordinance Developers, taking the old stuff and restoring it, putting in loft units. Some of those buildings are a piece of art.
The Bradbury Building (Blade Runner was shot there) was restored to it magnificent splendor in the late 80’s. The late Ira Yellen bought it for $8M and restored and retro-fitted it for $4M.(Ground floor Subway (Sandwiches) and so forth - office building.
http://www.greatbuildings.com/buildings/Bradbury_Building.html
What a beauty based on a Sci-Fi book!
Nothing like throwing good money after bad on a dated, run down obsolete building.
Good Morning cankerous HA.
The Bradbury Building is such a great piece of architectural history. Absolutely worth saving and the expense. It’s part of the Los Angeles tourist draw. In person, it’s fabulous. Plus, it was someone’s $, not the taxpayer’s. When you have that kind of dough and vision, we’ll talk. Evidently, the lender (if Yellen had one - Jewish tribe) thought the risk was a good one.
And it’s still a run down obsolete underwater, out of code building.
You know the housing debacle isn’t going to end well. Nothing is static forever yet housing is like a steaming pile of $hit frozen in a place in time while the temperature continues to rise. The ice cube is melting.
Realtor Charged With 14 Felonies
http://www.chestertontribune.com/Business/former_realtor_don_johnson_charg.htm
‘Media reports indicate that Zhejiang Xingrun borrowed directly from individuals. Second, its core market, Fenghua, near Ningbo in eastern China, shows signs of overbuilding. According to data from China Real Estate Information Corporation (CRIC), Ningbo had saleable inventory of 32 months at end-February 2014, compared with the average of around 15 months in 13 major cities CRIC tracks.’
‘Lower than expected Chilean GDP data, weighed down by falling copper prices, compounds analyst concerns about the outlook for the Andean economy. Poor growth figures posted by Chile this week are adding to concerns about the impact of a sell-off in the copper market, as analysts examine the new government’s economic prospects.’
‘Peru, which is hoping to ramp up investment and become the world’s second biggest copper producer after Chile by 2016, also looks vulnerable. The concerns, set out in the March/April edition of LatinFinance, come as copper last week fell to its lowest level since 2010. The mineral is Chile’s biggest export and source of more than 10% of its tax revenue. “Copper is one of the world’s most growth-sensitive and China-leveraged assets, and recent signals have been worryingly weak,” said Barclays research.’
‘Asia’s copper consumers are holding off on fresh purchases due to sluggish demand for the metal and expectations that tightening credit in top user China will push prices down further from the current three-year lows.
The subdued appetite for copper reflects unease about slowing growth in China and uncertainty about any widespread unravelling of copper-financing deals there. It suggests that prices have further to fall.’
‘China consumes around 40 percent of the world’s copper, and analysts estimate at least half of its imports are for financing deals where the metal is resold in domestic markets to raise cash for more lucrative investments such as property.’
‘China consumes around 40 percent of the world’s copper, and analysts estimate at least half of its imports are for financing deals where the metal is resold in domestic markets to raise cash for more lucrative investments such as property.’
Which makes you wonder how many stockpiles of mined copper ore is sitting around chinese ports.
Junk backstopped by depreciating junk backstopped by more junk backstopped by junk paper.
Got Cash?
I am staying away from copper right now because I really do not know what China’s needs really are for every article I see like the one above, I see what like this:
(Reuters)
Updated: 2014-03-19 14:14
Counter:14
China’s copper consumption will grow for “more than a decade” as demand from the world’s top user remains robust despite fears of an economic slowdown, a Freeport-McMoRan Copper and Gold Inc executive said on Wednesday.
Worries over slower growth in China, which accounts for 40 percent of global copper consumption, helped send prices of the industrial metal to a 44-month low last week, down 12 percent this year.
Still, the long-term outlook remained solid, said Freeport’s Javier Targhetta, senior vice president for marketing and sales.
“We are seeing still robust consumption in China. Of course there can be hiccups here and there,” Targhetta told Reuters on the sidelines of an industry conference. “I think Chinese consumption of copper will keep growing for more than a decade.”
He expected China’s import volumes to remain brisk even if its gross domestic product expansion slows to 3-4 percent, while a recovery in the U.S. and European economies should also copper consumption.
“Copper is increasingly needed both in mature and emerging economies,” he said.
Three-month copper on the London Metal Exchange was trading at $6,470 a tonne on Wednesday, regaining some ground after hitting $6,376.25 last week, its lowest since July 2010.
Freeport, which operates the world’s fifth largest copper mine in Indonesia, halted copper concentrate exports in mid-January over a dispute with the Indonesian government on a new tax.
“We are cooperating with the Indonesian government looking for a mutually beneficial outcome of the current situation. We hope to have it resolved soon,” Targhetta said.
Freeport and fellow U.S. miner Newmont Mining Corp have refused to pay an escalating export tax introduced on Jan. 12 as part of package of new mining rules aimed at forcing miners to build smelters and process raw materials in Indonesia.
Targhetta said the company’s Grasberg mine is producing at half of its capacity, but has not cut any jobs so far.
A union official said earlier this month that production at Freeport Indonesia was cut by around 60 percent. Freeport in February said it may need to declare force majeure on copper concentrate sales at its Grasberg mine.
I was thinking this morning; we heard a lot a few years ago about how poor regulation caused many of the financial problems. China is like the wild west when it comes to finances and regulation.
I was thinking this morning; we heard a lot a few years ago about how poor regulation caused many of the financial problems.
I know we all heard that but I wonder if it was caused by too much government involvement and not too little or poor regulation. Without government regulation you do have more boom and bust cycles but prior to the Federal Reserve recessions or panics what they were previously called did act more like panics. They were short term affairs that cleared out the deadwood like natural fires. Only the Federal Reserve with help from the big banks could have inflated the bubble as much as it occurred and created the huge crown fire that we had. People like Barney Frank actually prevented action due to the fact that the housing boom was actually achieving the growth of minority ownership of homes which was promoted by statute and policy since the 1970s.
If I am correct the fact that we have more regulation now will not save us from an impeding collapse bigger than 2008 since government’s role in creating a bubble has been even more pronounced as demonstrated by the surge in the Fed’s balance sheet and the doubling of the national debt.
‘more regulation now will not save us…since government’s role in creating a bubble has been even more pronounced’
Well, yeah, the government is actively promoting activities that will collapse. Most governments are doing this around the world. I’m a libertarian, so I’m no fan of regulation. I was pointing to things like mortgaging a building more than once and selling it to boot. And all this “shadow banking”. WTF is that and how does it not get looked at by the regulators? It looks more and more like these “Chinese investors” are just money launderers and China is full of corrupt, money printing lunatics that don’t know or care what they are doing.
If you think about it, that’s the opposite of how our media portrays them. Always in fancy suits, calmly waving to the adoring crowds. Smart, uber-rich, ready to take the super-power mantel from the US any day. IMO that’s a load of crap. China is a basket-case.
full of corrupt, money printing lunatics that don’t know or care what they are doing
That describes most of the world. China has been trying to catch up to the rest of us for a few decades now.
“There’s more financial destruction power in these 12 words in quotes below than just about any in the English language: ‘Subprime risks are contained.’ Ben Bernanke 2007.
You rang?
I remember like it was only yesterday, the day in 2007 when this was published—and how I could not resist immediately changing my handle to a sarcastic variant.
