Cross-posted from Investing in Chinese Stocks.
From iFeng: 土地市场跌至五年冰点 房企拿地热情不高:
“Now to the inventory is still the top priority, we are very careful about second-tier cities, third- and fourth-tier cities we have all withdrawn and in the future will basically no longer purchase land in these areas.” A national housing prices president told reporters.
…May 19, when the reporter saw Li Wei (a pseudonym), he just returned from a business trip to Shanghai. As Beijing a medium-sized real estate group vice president in charge of the headquarters of the initial investment, the regional group concerned whenever there is land promotion, he would rush over to see.
“From the end of April to now this close to a month’s time, basically to participate in land promotion in the field,” Wei told reporters, “Jiangsu Sunan six cities, Yuhang, Chongqing, Wuhan, Shanghai, where are we to go , as well as the soil will push Sichuan, Hunan, Guangxi, several four-tier cities also gave us an invitation, but because we do not plan to purchase, so do not go.”
…A bureau official in an Eastern capital city told reporters, “From the current situation, this year it will be difficult to hit land sales targets, developers are clenching their purse strings, we are powerless.”
…In fact, the government worry is not excessive, in April the national land market slipped to the “freezing point.”
Developers are nervous as well, even though sales are picking up. A sales director at a Beijing real estate firm said:
Now we’re actually more nervous because everyone wants to move inventory, God only knows how long this period will last.
In the north east it is worst and China’s most famous ghost city, Ordos, is back and not in a good way. The collapse of the city’s real estate and private lending market began in 2011, but the fallout continues into 2015. Ordos is an extreme case, but only one of degree and circumstance. The pattern of speculation, private lending markets and government planning are typical of many cities in China. Ordos blew a larger bubble, fueled by natural resource prices in a resource dependent economy, which led to a twin collapse of the local economy and the real estate market. The sharp slowdown in Northeast China could turn into a wider Ordos replay should commodity prices begin another leg lower, from Bloomberg:
Ordos City Huayan Investment Group Co., a developer whose chairman headed a group of livestock researchers, is at high risk of defaulting on 1.2 billion yuan ($194 million) of bonds if investors exercise an option to offload them in December, said Haitong Securities Co. and China Investment Securities Co. Also in the city, Inner Mongolia Hengda Highway Development Co. asked noteholders to defer rights to sell back private securities in April due to cash shortages, according to China International Capital Corp.
…Bond investors have demanded higher premiums to hold notes from the city. Elion Resources Group Co., which focuses on desertification prevention, sold 1 billion yuan of three-year AA rated debentures at 7.8 percent on May 7. That was 256 basis points higher than the average yield on similarly rated securities the same day. The yield on Ordos City Huayan’s 2018 bond has climbed this year to 9.63 percent since Pengyuan Credit Rating Co. cut the issuer rating from AA- to A and changed the outlook from stable to negative on Dec. 31.
…“Many small-city developers are running into financial trouble,” said Liu Yuan, a Shanghai-based research director for Centaline Group, China’s biggest property agency. “It’s the problem Ordos faces after its property bubble burst.”
…Cities suffering from declines in fiscal revenue need close scrutiny for potential debt failures, according to Zhang Chao, a bond analyst at China Investment Securities in Shenzhen. The highest-risk areas rely on resource production like Inner Mongolia and Shanxi, and also include northeastern provinces such as Heilongjiang and Liaoning, he said.
