Cross-posted from Investing in Chinese Stocks.
Anecdotes are piling up around the Chinese property bust. Developers in China’s second and third tier cities were secretly working to keep prices elevated in years past, but developers are now defecting amid vicious competition. Ifeng doesn’t mention September and October, but that’s when competition is going to go full tilt. Small and medium developers in financial difficulty will be pushed to the wall because it’s their last chance to recoup capital in 2014.
The same article describes the failure of Harbin authorities to lift demand and that’s an increasingly widespread outcome. Also from Ifeng (forgive the Chinglish):
With the property market into a deep adjustment, there has been a wave of some cities in Yangtze River Delta check out a small peak.
According to Hangzhou housing net latest data, as of August 19, Hangzhou, August has been out 63 cases, while in July the number reached 128 units in Hangzhou Check. August 17, Nanjing City Housing Authority announced check-list, compared with July, August check out the number of units from 41 units to 50, hit a new high this year.
In Changzhou huge pressure on the stock, check out the phenomenon has increased over previous years. Check out the information previously disclosed in Changzhou City Housing Authority shows that a large high-end residential units have experienced centralized check-out.
“Check out the reason is more complicated, although house prices led some buyers check out, but with the 2008 Check tide is different is that this year the bank continued to tighten credit, buyers do no less than the loan is an important reason to check out.” First Pacific [ -3.92% ] Jane Davies, research director of China can be told the “China Times” reporter.
Check-out behavior is easy to link up with the price cuts. And by the Nanjing Housing Authority official website “online real estate” Check out the list of recently published, does have some real estate during markdowns.
……”There is no credit support, the market is difficult to really pick up. Inventory pressure the larger cities, the property market to bottom out, there is still a long way to go.” Tang Yaoguang said.
“Check out” is returning homes. At SCMP, small developers are seen as prey for the big boys. Stocks are cheap, land is expensive. If you want to buy land, buy it via the equity market:
“Property shares are seriously undervalued and I think good developers, especially those listed firms with strong financing support, now have the best opportunity to acquire others through the capital market,” Henry Cai, the executive chairman of Deutsche Bank’s Asia-Pacific corporate finance section, told a recent property forum.
“Listed firms should take over others before they are blown down. It’s cheaper to acquire their equity stakes than directly buying their land reserves, and it’s also cheaper than land parcels from auctions held by the government.”
A piece of land could easily cost billions of yuan in major cities such as Beijing and Shanghai, as supply in core areas was scarce.
Local governments were also reluctant to cut prices despite the market downturn.
On the other hand, most developers are trading at price-earnings ratios of five to six, down from double digits during the industry’s heyday a few years ago.
Meanwhile, officials are conducting a strict audit of ￥15 trillion worth of land sales as part of the anti-corruption sweep. From ECNS:
Led by the State Council, the move will involve audits of land income, land requisitions, reserves and supplies between 2008 and 2013, changes in farmland volume between 2009 and 2013, the protection of cultivated land, and sea use planning.
The audit report is expected to be released in October.
Land sales have become a vital source of income for local governments. In 2013, land revenue totaled 3.91 trillion yuan ($640 billion), according to the Ministry of Finance. The figure was 2.67 trillion yuan in 2012.
The Chinese articles are focusing on the potential corruption by officials, who are probably not sleeping these days. Some good snips from the Google Translation below:
he said such as land transfer states have reached a certain amount in some places the book, in fact, but most of these inside secretly transferred land revenue losses of state-owned enterprises, state-owned enterprises after years of surplus revenue to finance partially paid, Other balances to switch to channel spending.
……”Auction fraud is also very easy, the government had negotiated with companies in advance, and then find a few to accompany the subject of the auction posturing, of which there is money deals.”
Some local governments have been papering over losses at state-owned companies with misdirected land sale revenue. No doubt those SOEs borrowed money based on their solid financial status. The SOEs paid back the money if they had some left over or earned a profit at year end. The latter is the type of corruption that will take down officials all over China. This audit is going to open up a major can of worms.
And, official rhetoric remains strongly biased towards reform not stimulus. From President Xi Jinping:
China’s road to opening up and modernisation would be long and difficult, President Xi Jinping said yesterday, but added that the country must move forward with reforms.
He even called on cadres to allow for a little dissent if necessary.
Xi galvanised the push for deepening reform when he chaired a symposium marking the 110th anniversary of the birth of the late paramount leader Deng Xiaoping. He called for courage, warning a deadlock in China’s progress would lead to the collapse of both the Communist Party and the nation.
“We should push ahead with reform and opening up without hesitation,” Xi said at the symposium, which was attended by all members of the Politburo Standing Committee. “We will have many great struggles of new historic uniqueness along our path for progress.”
Xi said cadres should have the political will to try new initiatives, and in remarks that signal that his massive anti-corruption campaign would continue, he said cadres should set aside their personal feelings and even hire people who had opposing views.
“Comrade Deng Xiaoping long opposed privileges and corruption. He was also strict with his relatives and people working around him,” Xi said.
