Chinese blockade agents as house prices tank

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From Investing in Chinese Stocks.

Ifeng reports that a property in Guangdong that sold for between ¥16,000 and ¥21,000 per sqm was cut to ¥9800 to ¥12,500 per sqm, or 40% off. Existing homeowners were so angry that they locked the gate of their development and did not allow and sales people or customers access. This didn’t stop sales though, with about 75% of the units available already sold. One man who paid ¥16,000 per sqm in 2012 is angry that more attractive riverside apartments were not on sale back then, and now they are being sold at a much lower price. The gate of the development is blocked by police and homeowners; homeowners check every person’s identity card to make sure they are residents before letting them in. Sales agents have resorted to using nearby restaurants as sales centers.

The reporter contacted the company by phone, finding the discussion of this property’s price cut was taboo. They only said that the price was cut ¥1000 or ¥2000 yuan to make up for some poorly done or unfinished furnishings. One agent said that actually the homes were bought by a large company who planned to use the homes as part of a benefits package for workers, but the firm ran into a cash crunch and it was they who dumped the property. However, the properties have never been registered, which makes this story suspicious. Another developer said that their land costs are about ¥5800 to ¥6000, and they need to add another ¥5000 for construction costs, they are basically selling the homes at cost.

Meanwhile, the SCMP is reporting:

China’s current property market downturn will probably last three years and eliminate a third of the players, the founder of a Hong Kong-listed mainland developer said yesterday.

His comments added fuel to an already heated debate about the industry’s outlook given slowing growth in the world’s second-largest economy.

“A problematic correction will probably take three years,” said Tian Ming, chairman of Landsea, a green-tech developer based in Nanjing, Jiangsu province. He was the most pessimistic among six developers in a property forum panel in Hong Kong. “I am an honest man,” he said.

……Developers, including Tian, foresee no collapse of the once bubbly real estate market, as policymakers still have many cards to play in the short term and the country’s urbanisation push will support housing demand in the next decade. But they all realise the need to sharpen their competitiveness in a fierce market consolidation.

A summary of all Chinese developers listed onshore and offshore by E-House showed they were ill prepared financially, with their leverage hovering at historically high levels.

And finally, also from Ifeng, a Chinese official has mad the first public admission that a mini stimulus policy is in effect, but some Chinese economists say that any stimulus is a mistake because the prosperity is only temporary.

There is no set meaning to the phrase “mini stimulus.” The government used it because it opposes the big ¥4 trillion stimulus from 2008, but that leaves a lot of room for interpretation. The word is ambiguous because China’s economy is at a “delicate” stage. The line between long-term reform and short-term stimulus are blurred.

Shen Jianguang of Mizuho said, “We won’t see a repeat of the 2008 stimulus plan. In fact, the mini stimulus is this government’s response to the hard landing risk, they are inclined to use reform and unleash market forces, such as through decentralization, speeding up approvals, to nurture and develop new growth and long-term competitiveness.” He also says that if the RRR isn’t cut, then the various stimulus policies will have limited effect. He also gives three reasons why a RRR hasn’t come yet: the government wants to force reform; the government is waiting for a signal to cut; or the government is optimistic about the economy.

Houses and Holes
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Comments

  1. Dear Guangdong homeowners,

    Now you know how we feel when we buy a pair of jeans for $100 and a month later see it on sale for only $25.

    The only difference is that I bought my jeans to wear I.e consumption and not to speculate on getting a financial gain from asset price inflation.

    The same mentality should be applied to buying a home to live in. If you were content with the price of the property you bought at the time you decided to buy, then live with the consequences.

    If you bought yourself a home you shouldn’t have to worry about what the market value of your home as Dale Merriman said “your home is your castle”

    • casewithscience

      @nivek

      Ssshhhh, if they don’t speculate then their currency will have nowhere to go, it will go through the floor and we won’t get good iron ore prices.

    • Such a romantic

      I guess you would always lose at Monopoly, why would I buy a property on the board and charge rent to those who land on it?

      Soon enough you’d be broke for forking out for rent, owning nothing, but at least your romantic theories would keep you feeling smug

  2. I wonder, can the protesters see the contradictions in wanting everyone following to pay as much or more as they did.

    Am I more likely to play greater fool if existing owners expose their self-inflicted financial wounds and advertise the pain being endued?

    The developers are likely to discount harder and faster to exit their losing position and all that horrid publicity.

    Perhaps vendors are counting on the anchoring effect – 40% off is a bargain. Why not 80% off, or 95% off.

    Not a good time to go long and geared RE.

  3. Last night I spoke with friend in Hangzhou about the local economy. Hangzhou has lots of small electrical enterprises and heaps of small manufactures yet there was no mention about manufacturing he just said that all three of the fastest growing enterprises in the area had simultaneously tanked. It took me somewhat by surprise because demand for manufactured goods has been fairly solid. So I asked him to explain. Well it turns out the three fastest growing enterprises in the area were
    – construction
    – real estate agency
    whore house KTV’s/massage
    It was hard for me to think of an economy where the last two of these enterprises are considered systemically important but I cast my mind back to the good old days in Hangzhou around 2009/10, I remember driving along a road in the north of the city where lots of new residential construction was happening, for about 5 miles I saw nothing but construction, real estate agents and whore houses. So I asked him about that road, he just laughed he knew exactly which road I was talking about, the constructions finished the buildings are vacant but everything else has packed up and moved on.

    • Interesting anecdote.

      I would be interested to know where you think the growth required to achieve China’s 7.5% GDP and 17.5% Fixed Asset Investment targets this year will come from?

      More KTV, empty building construction, and whorehouses…

  4. The original selling prices equate to AUD 3,000 to 4,000 per metre square for what is essentially an empty shell. Well bugger me that is too much to pay even in Aus. I understand that high rise buildings are very cost effective to build and that paying an excess over the build price plus a reasonable margin is ludicrous. If one builds a tower the cost price of the land should be become negligible.
    Therefore people paying exorbitant prices for apartments in multi storey buildings whether here or in China only have themselves to blame.
    Always do the sums.

    • casewithscience

      You are assuming a currency conversion which is overdue for correction (Yuan down, not dollar up).