August 18, 2014

Speculators Who Became Pessimistic

The Property Report from Thailand. “There’s a new language of tourist in Chiang Mai and it’s not Russian. Ubiquitous signs in Mandarin have appeared all over. From spas to property agents, everyone seems ready to cash in on the tourist yuan. A noticeable aspect of this development is the change to the city skyline as condo buildings have been popping up in outlying neighbourhoods, and prices have been spiking at THB80,000 (USD24,700) per sam, double what it was four years ago. Targeting the new arrivals is Kingsfield, a Singaporean-managed company with a strong architectural background. They have been conceptualising several modern developments, including The Consulate Residence, across the city and hoping to market them to Asian expats. ‘They’re not buying one or two, they’re buying six,’ says Matthew Lim. This is likely as a safety mechanism to externalise money, he explains.”

“Bernard Yeo from Century 21 group and manages one of the few international property brands in the city. ‘The Chinese buyers are mostly businessmen who have accumulated some funds and see the potential of Chiang Mai growing further,’ he says. ‘They’re quite fast in making decisions. So long as they feel the price is right, they will execute it without giving it any second thoughts.’ He points out that they like the clean air and freedom, though most are buying as investments rather than residences.”

“But is a bubble developing? In spite of the growth, the number of empty new shophouses constructed along the three ring roads that girdle the city is very obvious. The emerging middle class can create demand among the slew of new housing developments, yet the number of new condos seems optimistic. In spite of politics and a strong baht, the market demand is being sustained by Chinese money. Major alterations to the Chinese economy could be a blow for the city.”

From Xinhua. “China’s property sector showed new signs of cooling in July, with more cities reporting month-on-month price drops, official data showed on Monday. Out of 70 major Chinese cities, 64 saw month-on-month price declines for new homes in July, compared with 55 in June, the National Bureau of Statistics (NBS) said. ‘Within four months, new home price drops spread from individual cities, with only four in March and eight in April, to the record high of 64 cities in July. The pace of cooling in this round of property adjustments is faster than market expectations,’ said Zhang Dawei, chief analyst at real estate agent Centaline Property.”

“Zhang said the latest data suggested that the cooling trend was still evident. Growth of property investment decelerated for six months straight starting in February. In July, monthly property sales stood at 81.15 million square meters, representing a year-on-year decrease of 16.3 percent and a month-on-month dive of 34 percent. Zhang said rising inventory suggested that a housing oversupply has begun to show in some cities.”

From Dow Jones/Beijing. “A whiff of desperation lingers over China’s property markets. Investors betting on a quick real-estate recovery would be wise to consider the consequences. Last week the housing bureau in the southeastern province of Fujian announced a province-wide programme to insert itself in the market, directing local authorities, property developers, banks and construction firms to team up to rescue financially struggling projects.”

“Prices are sliding, and inventories of unsold properties are high across China. A recent study by data tracker China Real Estate Index System showed that 17 Chinese cities have housing inventories that could take more than five years to digest. There’s also an oversupply of property developers in need of financial help. Investors have taken local government easing moves as the beginning of the end of the property market’s woes. They might be better off taking it as a sign of how bad things really are.”

From IFR Asia. “Default rates in China’s trust loan sector are set to rise in the next 18 months as regulators rein in credit growth and loans to underperforming companies come due. The default rate in the country’s roughly Rmb11trn (US$1.79trn) trust industry could hit 5% this year and next year, according to analysts and economists. Trusts backed by loans to lacklustre industries, such as coal and real estate development, are expected to have trouble meeting repayment schedules, sources said.”

“‘With the industry’s current capacity, we estimate that it can handle a default rate of maybe 2.3%,’ said Yifan Hu, head of research at Haitong International. ‘According to the most conservative estimate, the default rate will be 5%, which is a huge distance from 2.3%.’”

“There are some signs that initial efforts to control bank off-balance sheet financing and non-bank lending, including trusts, has paid off. Total social financing, a measure of liquidity in the economy, fell 86% in July to Rmb273bn from Rmb1.97trn in June, the People’s Bank of China reported last week. It is the lowest level since 2008. In addition, new renminbi loans last month totalled Rmb385bn, down from Rmb1.08trn.”

Want China Times. “An increasing number of Chinese real estate investors have become unable to pay their mortgages and are facing legal action from banks, writes our sister paper Want Daily. The situation has emerged in China’s first-tier cities, with fears that it might develop into a full-blown version of the US subprime mortgage crisis that sparked the global financial status in 2008. Several real estate projects in second-tier cities which were very popular when launched have run into dificulties and developers have been forced to shift their inventory at lower prices.”

“The situation has been brought about in part by speculators from Hong Kong, Macau and Taiwan who became pessimistic about the future of real estate in China, Want Daily said. A document from a Jiangsu court reveals that the number of mortgage disputes this year has doubled from last year. Among 367 legal cases involving real estate disputes, there were 98 cases in which investors were unable to pay their loan back.”

“The document also suggested that over half of the defendants were from Fujian province. Several other cases involved groups of friends and family members who banded together to buy up real estate but when their banks called in their loans simply allowed the banks to repossess the properties without showing up in court.”

The People’s Daily. “An international manhunt is underway for a Chinese businessman who fled the country following allegations of fraud, authorities said. The International Criminal Police Organization (Interpol) has issued a red notice for Liao Rongna of the Zhengling Group, a private conglomerate based in Liuzhou City, south China’s Guangxi Zhuang Autonomous Region. Liao is said to have cheated his way into several billion yuan of loans by promising investors high returns, then failed to repay the debt. Being found guilty of this kind of crime in China can result in a death sentence.”

“According to Li, another local entrepreneur, people all over Guangxi mortgaged their houses and companies to local banks to raise funds for Liao, only to find the billionaire suddenly incommunicado. Police found more than 1,500 loan contracts worth 3.2 billion yuan in Zhengling files during their investigation. ‘I lent him 20 million yuan (3.25 million U.S. dollars) only this March, because he assured me that I could get a rate of 0.3 percent per day,’ said Li, who had previously splashed out 37 million yuan on a deal he thought was too good to be true. He was right. Liao has not paid back the money.”

“In recent years, any number of millionaire businessmen like Liao, accused of fraud or simply out of their financial depth, have fled the country. Life abroad with large with large sums of other people’s money is far preferable to dealing with bankruptcy or feeling the wrath of the domestic law. In a national teleconference in July, officials with the Ministry of Public Security called on police authorities to urge suspects to give themselves up and to offer rewards for information from the public that leads to arrests.”

“‘Even if they are in the farthest corners of the world, we will find them, seize them and bring them to justice,’ said Liu.”

From MarketWatch. “China’s corruption crackdown is now starting to make waves in another corner of the economy, as officials afraid of government scrutiny are dumping apartments. In one case late last year, an Inner Mongolia political leader named Wu Zhizhong was convicted of corruption, accepting bribes and embezzling public funds. Investigators said Mr. Wu owned 33 properties in China and one house in Canada. Xinhua, China’s official news agency, said the keys to all of his homes could fill up an entire handbag.”

“According to roughly a dozen property agents interviewed by The Wall Street Journal, officials are now afraid to buy luxury pads, and several are trying to offload properties that might raise red flags. According to real-estate agents, government officials make up as much as 20% of owners in the luxury housing market, and the agents say they simply aren’t buying much anymore. ‘A major way to corrupt an official is to give him a house as a gift,’ says Yan Jirong, a professor at the Peking University School of Government. ‘The anticorruption campaign is sending a signal’ that such tactics should be stopped, he said.”

“In June, one government official offered a two million yuan ($325,000) discount on his apartment in Beijing’s downtown Chaoyang district, originally priced at 22.5 million yuan, according to the real-estate agent selling the home. An advertisement for the four-bedroom home was titled ‘Distressed sale!!!’”

“Many officials mask their homeownership by using the IDs of their chauffeurs, relatives or surrogate buyers, according to real-estate agents. One agent in Beijing said a client was in the process of unloading a home when the client was arrested last year. ‘I didn’t realize he was an official until I saw his picture online when he was arrested,’ the agent said.”

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Comment by Ben Jones
2014-08-18 07:38:27

‘Hong Kong property tycoon Li Ka-shing has dumped asset holdings over the past year to cash in more than 80 billion yuan (US$13 billion) and shows no signs of stopping, the Beijing-based Securities Daily reports.’

‘Li began his retreat from China in September 2013 when he dumped a large amount of his mainland properties. The sell-off of properties in Beijing and Shanghai came as a warning signal, Shanghai-based China Business News said in an early March report, citing China Vanke chairman Wang Shi.’

‘According to incomplete calculations, Li and his sons who share his empire have dumped properties to cash in about HK$25 billion (US$3.2 billion).’

‘In addition to properties, Li has also accelerated selling other assets he controls. In March, he sold a nearly 25% stake in AS Watson Group to Singapore’s sovereign wealth fund Temasek Holdings for 34.9 billion yuan (US$5.67 billion). On March 14, Hutchison Whampoa’s Singapore unit sold a 60% stake in Asia Container Terminals to cash in 1.96 billion yuan (US$319 million).’

‘Since 2013, Li’s subsidiary has begun dumping ChangYuan shares and as of June 2014 it has unloaded all its holdings in ChangYuan, cashing in more than 2.7 billion yuan (US$440 million). ChangYuan had been the only listed A-shares controlled by Li until the latest selloff.’

Comment by Ben Jones
2014-08-18 07:46:08

‘Just when investors began talking about a possible rebound in property prices, Hong Kong business magnate Li Ka-shing sold off a luxury office building in Shanghai. This is just the latest sale by Li, who has already unloaded several billion dollars worth of mainland property assets over the past year.’

‘Many analysts closely monitor Li’s moves to gauge which way the winds are blowing in the investment market. Naturally, his recent property deals have piqued the interest of many, coming as they do amid a slowdown in the mainland’s real estate market. Recent trends suggest that he could be onto something.’

‘According to a recent survey conducted by Peking University, every Chinese household owns an average of 1.35 homes, suggesting that demand is plateauing. At the same time, the market is also overloaded with unsold supplies. Those betting on “rigid demand” from real home buyers may be sourly disappointed.’

Comment by Whac-A-Bubble™
Comment by Ben Jones
2014-08-18 07:40:26

‘The bosses of three big Fujian companies in the clothing and footwear industry: N&Q, Eratat Lifestyle, and Hoperise have suddenly disappeared, Taiwan’s Central News Service reported.’

‘On July 23, shares of N&Q fell 50% and the company saw its trading suspended. It was revealed on July 24 that the head of the company and his wife had gone to ground, taking with them large sums of money that they stockpiled through delayed payments and fraud.’

‘On Aug. 7, footwear giant Eratat Lifestyle was revealed to have put off paying its workers for months with factory operations dormant since 2013. The company head is nowhere to be found, confirmed the company, and some staff have resorted to legal procedures to get the money they are owed.’

‘Hoperise, another textile manufacturer, has been delaying payments to suppliers. The boss is nowhere to be found.’

Comment by Ben Jones
2014-08-18 07:44:02

‘The shipping industry may have planted the seeds of its next crisis, even as it works to finish recovering from the last one, with a rise in the number of ships now being built in Asia. Many new ships are being built, mostly at Chinese or South Korean shipyards. When these hit the water over the next year or two they will create a glut that could hurt prices and push the industry into a new crisis.’

Comment by rj chicago
2014-08-18 11:51:16

Follow what is going on with the expansion of the Panama Canal for a connection to this issue. The tonnage currently going through the canal seems to be dropping due to decrease in demand or may it be an increase in supply?

Comment by taxpayers
2014-08-18 07:44:41

safety mechanism to externalise money,

the spell check is busted

externalise you long time

Comment by snake charmer
2014-08-18 11:00:08

That is a British English spelling, where -ise is used instead of -ize. But I’m fascinated by the cute semantic description of money laundering and protection of stolen funds.

Comment by Larry Littlefield
2014-08-18 07:48:39

Jeez Ben, have you been at this for a decade? When you started chronicling THE housing bubble, did you ever think there would be TWO of them?


Comment by Ben Jones
2014-08-18 08:02:43

IMO, it’s the same one.

Comment by Raymond K Hessel
2014-08-18 19:28:34

The first one was never allowed to play out thanks to the Fed and TurboTax Timmy. The epic fraud and can-kicking got a new lease on life thanks to the Bernanke/Yellen printing press. But the reckoning day may be deferred, but it’s coming.

Comment by Whac-A-Bubble™
2014-08-18 20:46:41

With myriad government interventions over a protracted period of time to reflate the Housing Bubble, is there any surprise it is lasting far “longer than expected”?

Comment by Ben Jones
2014-08-18 07:49:04

‘Total social financing collapses to 273.1b yuan, down 86.2% from June’

‘With China’s financial landscape still ringing with the central bank’s calls to ease credit conditions, bank lending collapsed in July.’

‘Figures released Wednesday from the People’s Bank of China (PBOC) show social financing, a broad measure of credit within the economy, equaled just 273.1 billion yuan ($44.37 billion) last month, down from 1.97 trillion yuan in June. Meanwhile, new yuan loans in July stacked up to just 385.2 billion yuan, compared with 1.08 trillion yuan the previous month.’

‘These results are all the more startling since they follow so quickly on the heels of government moves to promote bank lending through targeted reserve requirement ratio cuts and loan-to-deposit ratio adjustment.’

‘Weakening demand for housing is another obvious factor, although perhaps more troubling is the anemic business growth that’s now taking place in China’s real economy. Many businesses are having an increasingly difficult time raising funds, let alone generating a profit. Moreover, the staggering cost of fundraising is putting companies and officials alike in a hard situation.’

‘If enterprises in China’s real economy continue to suffer, it’s hard to imagine a bright future for the broader economy. The financial system is like the circulatory system of the real economy - once demand for blood starts to weaken, the results can be fatal.’

Comment by Whac-A-Bubble™
2014-08-18 20:48:50

‘Total social financing collapses to 273.1b yuan, down 86.2% from June’

Is it safe to assume this development will have no effect on 7.5% GDP growth forever?

Comment by Ben Jones
2014-08-18 07:54:06

‘Heilongjiang official Cao Li remembers getting dumplings and mooncakes, some of them given by subordinates, at festival time. But no more. Even “small perks” such as these have disappeared since China’s President Xi Jinping launched his austerity and anti-corruption drive nearly two years ago.’

‘Instead, officials like Ms Cao, who works in the north-eastern province dealing with petitions from the public over disputes against government agencies, are constantly reminded that they must serve the people, or “wei ren min fu wu”. “Our work is more hectic and expectations are higher, but we have lost our perks and our salaries have not risen,” Ms Cao, who has 18 years’ experience and earns 3,200 yuan (S$648) a month, told The Sunday Times.’

‘China has about 7.6 million officials, all used to a cushy life until Mr Xi took power in late 2012 and made rooting out official corruption a top priority. Among the first things to go were perks such as taking official cars for personal use and overseas holidays in the guise of an official training trip. Officials also had to surrender private club membership cards.’

‘And if there is anything that Chinese officials can be sure of, it’s that President Xi has no intention of stepping on the brakes.’

‘Chinese officials slashed spending by 326 billion yuan last year compared to 2012, which has reportedly led to weaker growth in sales and fixed-asset investment. Economist Alastair Chan of Moody’s Analytics said in a note last month that the two campaigns contributed to declining housing market transactions, and reduced construction of overly luxurious local government buildings.’

‘There are also worries about morale, with a growing number of officials reportedly quitting to join the private sector or officials committing suicide due to disciplinary investigations. Official statistics show fewer Chinese are applying to join the civil service.’

‘A Beijing official, 28, who wanted to be known only by his surname Xiang, is quitting his job as an accounts clerk next year. “The iron ricebowl looks set to be smashed by this new leadership,” he said. “It might be better to leave early before it is too late.”

Comment by tresho
2014-08-18 10:38:30

“It might be better to leave early before it is too late.”
An old Chinese survival principle, dating back to the days when large cities could only be evacuated on foot or on horseback, whenever barbarians or revolting war lords threatened.

Comment by Raymond K Hessel
2014-08-18 19:31:12

How ironic that in the People’s Republic, crony capitalism, while still rampant, is being constrained, while in the US, unfettered predatory capitalism is completely unchecked and literally above the law.

Comment by Ben Jones
2014-08-18 08:01:08

‘House hunters may complain, but the “phenomenal” influx of Chinese money into the local residential property market may be the best thing that happened to the local economy as it struggles to make its difficult transition from an unprecedented mining boom.’

‘The demand from foreign investors for Aussie bricks and mortar is set to intensify for at least three years, driving a boom in apartment construction activity and boosting the bottom lines of listed companies.’

‘In putting together their report on the impact of Chinese investment on the local housing market, CLSA analysts spent the past six months meeting more than 50 property industry contacts, both here and in China, in order to fill in the gaps in a high-profile story which has often relied more on anecdotal evidence than hard data.’

‘The conclusion they reach is no less striking: the “phenomenal” Chinese investment in Aussie housing will continue “for at least three years”. That will drive construction activity as developers rush to fill the gap between supply and demand.’

‘The researchers believe that its unlikely there will be significant changes in local foreign investment rules, despite a current Parliamentary enquiry. Nor do they believe Chinese authorities will place new restrictions on capital moving out of the country.’

‘They are similarly sanguine about the prospect of a property price crash in the top Chinese cities, and note that the non-financial motivations for investing in overseas mean “the price of property in their home market may have limited influence on their intentions and ability to invest in Australia”.

‘In other words, the trend is here to stay. And behind the doom-laden warnings of inflating property prices, an influx of investment that sparks a jobs-heavy housing construction boom may prove to be the tonic for an economy struggling to transition from its mining boom.’

This last bit reminds me of that into-song for that kids show, it went ‘George, George, George of the jungle….’ Who remembers the next line?

Comment by Aqius
2014-08-18 09:43:40

” watch out for that Xi ” ?!

Comment by snake charmer
2014-08-18 11:06:37

This is what happens in a market society, as opposed to a market economy. Nobody can, or cares to, measure the impact of this in anything other than housing prices are up, and more houses are being built. Well, hooray. Enjoy what becomes of your neighborhoods.

Comment by Housing Analyst
2014-08-18 08:31:26

…… serving up Chinese CraterTaters far and wide.

Comment by tresho
2014-08-18 11:06:16

Found in the help-wanted section of Indianapolis Craigslist, posted 5 days ago.

Necesito rooferos y drywalleros para trabajar con trabajo diario 7 días a la semana si lo nesesitan.

You should speak English
llamar al…

Comment by snake charmer
2014-08-18 11:11:38

Too funny. I have seen English words bastardized into Spanish before, by native speakers of both languages, so it’s entirely possible that “techador,” for example, now is “roofero.”

Comment by In Colorado
2014-08-18 13:19:48

FWIW, roofing is done quite differently in Mexico. IIRC it was called “impermeabilizacion”. I don’t think you’d ever see tar paper or dimensional asphalt shingles down there. The only place I’ve ever seen drywall (tablaroca - sheetrock) used down there is in office environments, and even that was rare.

Since these skills are pretty much unique to the US (and Canadian) markets I can see why they are described using Anglicisms.

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