Chinese real estate market freezes over

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Cross posted from Investing in Chinese Stocks

Earlier this week I posted Another Credit Guarantee Gone Bust, One Month After Backing A Trust, which covers the latest incident of a debtor fleeing his or her debts. In that case, the debtor is the developer Shi Yubao of Golden Century, who borrowed privately from thousands of people. The result of this episode, and no doubt the defaults earlier in the year that involved similar borrowing practices (see link above for more info), is that Handan residents are now afraid to purchase a home. They fear the others developers could also run away too since many of them have used the similar methods to raise capital.

Many developers in Handan have closed their sales offices and are in no mood to sell homes, they’re looking for a way out instead. Besides the home buyers disappearing, the lenders want their money back. Suppliers and contractors want their money too. Normally, they would settle their accounts with developers at year end, but now they want to be paid in advance for fear the developer could skip town.

There is nearly a ¥10 billion black hole of private lending. Dozens of developers have 300 projects underway in Handan, at least half used private money. About ¥6 billion is already in trouble, but it could grow to ¥10 billion as other developers get into trouble. Interest rates on money raised from individuals can exceed 20%, and in order to keep up with debt costs, developers need rising home prices.

With the market cooling, the developers can no longer out run their interest costs. According to the article, price growth through August is only 3% since 2012. Back in 2012, the estimated average profit on a home sale was only 19%. With construction costs rising, financing costs piling up and prices barely rising, profits have no doubt tumbled.

Handan developers are intimately tied in with local government and non-local developers avoid the market. Golden Century CEO Yu Shibao, the man who has fled town and precipitated this latest crisis, was appointed to a supervisory position in the Hebei Province People’s Procuratorate. The firm also obtained the best pieces of land in Handan at preferential prices. Other developers also have ties to provincial government offices.

This should be the season of the “Golden September and Silver October,” has appeared in more than Handan estate sale of strange phenomena.

“Sale is forced, Handan now many people are afraid to buy a house, because a lot of developers have private funds, buyers fear that they, like other developers on foot, holding Yushoukuan foot.” A well-known project in Handan sales office staff said.

And multi-estate sale relative, Handan City continued emission of residential flats. According to “China Times” reporter investigation, Handan City currently has gold-century homes, and many other items Regence Royale downtime, developers disappeared.

Has prevailed for nearly 10 years Handan real estate private fund raising tide finally exposed in this crisis. Local leading real estate developer, chairman of Golden Century History Yu leopard two months ago after running, is still missing, this event down a domino multiple developers Handan local collective breach.

According to “China Times” reporter investigation, Handan local developer with more than 20% or even 30% per annum of high interest as bait, just a few years raising billions, will these funds to pay land premium or for other purposes . When accelerating enclosure, financing difficulties encountered drama down the property market, these developers can not continue to gamble.

“Unfinished” domino fall

Handan in terms of property, breach of contract since July storm rolled tired Handan to this property on a heavier blow, since the end of August, Handan multiple sales offices have been discontinued.

“On one hand the affected developers raising borrowing Handan, Handan locals panic, caught on the sidelines, on the other hand, due to too many fund-raising events involving local developers, many housing prices are on the lookout, has no intention of selling. “The industry stakeholders on the local property market is very understanding of Liu Miao told reporters.

In addition, the local industry, told reporters, mostly due to local developers is the initial project development, “Sellers number”, etc. for sale, but a way to raise funds in this way is also the developer, so the local government fund-raising event for developers During the investigation, the houses of the project in this way with a number of sales offices accompanied sale is unfinished after another stoppage of multiple disks, newspaper reporter September 18th century estate to gold’s gold Century Garden Project, found that the majority of the House of the project has been capped, but the long lay-off, the sales office was empty, but has already sold part of its office buildings, residential also sells the most.

According to official public information display Handan City, Zhuo Feng Real Estate Development Co., Ltd. is in operation six items, such as love good Scarlett, Regence Royale and other payment borrowers by raising the impact of basic also been shut down, one of the three projects occupied an area of ​​384 acres of land as much.

“Handan recent emergence of a large number of residential flats and private lending disc are related to the recent crisis, in order to avoid the situation continues to expand, the relevant government departments to request payment of part of the funds related to housing prices as much as possible, for many developers of capital chain rupture. “Liu Miao told reporters.

Liu Miao also revealed that in addition to private developers raised funds require payment, due to the great influence of Handan fund-raising events, many suppliers are required to advance the construction side and settle some of the money, “a lot of money should have been the end of the Results section, but the accident After that, suppliers and construction side have come to account for fear of more and more developers on foot. “Liu Miao said.

Raising nearly ten billion “black hole”

Handan emergence of a large number of residential flats, exposing private lending to local developers nearly ten billion “black hole.”

“Handan multiple developers collective breach occurred in July of this year, when Zhuo Feng real estate company from July 1 to start cease, Golden Century Real Estate is also posted in early July announcement that people stop paying interest on the investment, and then learned that two developers CEOs Ma Haichen history Panthers have fled Handan danger. “Golden Century Real Estate creditors and Zhuo Feng told reporters.

September 18, Handan Golden Century International Business Center 26th floor was packed, there was once a golden century real estate company meeting hall, but now has become a creditor to discuss the center. The same day, dozens of creditors, and Golden Century estate house staff briefed reporters on the Golden Century real estate private fund raising routes.

“Beginning in 2006, the beginning of the century estate with no internal staff to borrow mortgage financing in pure form, was promised a monthly interest rate ranging from 2 assigned 3.5 points.” Li Yan is responsible for Golden Century estate related audit work (a pseudonym ) told reporters.

“Late, as the Golden Century more and more real estate development projects, raising its lending interest rates higher and higher, extended to employees relatives and friends.” Li Yan told reporters, adding, “In the beginning only invest 5 million only to the monthly interest rate of more than 3 points, then as long as the investment of one million or more, the monthly interest on up to three points. ”

In addition to unsecured loans, the Golden Century estate auction also to the shops, shops and other forms of mortgage financing to investors, the annual rate of return on its commitment to more than 20% of the contract period ranging from five to 10 years.

Just a few years, with a variety of ways of high interest private loans, funds, gold-century estate industry itself bigger and bigger, its development ranging from Handan extend all the way to Linyi, Suzhou, Chongqing, Fiji and many other places. In the “demonstration” effect Golden Century, many local developers have begun to follow suit.

According to helping dispose of the Working Group Handan City announced the news show, Zhuo Feng external financing real estate companies began in the second half of 2011, the main channel is the internal staff to raise funds, set up a special team to the community to raise financing, raising about 1.6 billion yuan, financing interest between two to five minutes, the number of financing involving about 10,000 people.

Another reporter organize statistical data show that Handan currently dozens of developers, about 300 real estate projects, which were at least more than half of private financing, debt collection creditors suffered only developers currently calculating its total financing has been more than 6 billion yuan, if you count the other developers of its total financing of the fear over ten billion.

At present, the Golden Century real estate and real estate to stop interest Zhuo Feng, after CEOs running, Handan many developers are involved in private lending to investors have stopped the performance interest.

Or lead to the collapse of the crisis

In contact with a number of creditors reporters, many creditors directed at the root of developer financing breach caused the present government regulation that loose connivance.

“These developers involved in fund-raising to take place in a number of sectors, development, sale and other documents are incomplete presence, the verification process is not transparent. To 思特利 for example, in this August 23 to stop after about interest such as, The company had been able to acquire land auction. “one creditor Site Li pointed out to reporters.

Handan City connivance of private funds, is derived from the local government reliance on land finance. 2012, Handan City land transfer to reach 4.1 billion yuan, the same year, Handan City, revenue reached 32.91 billion yuan all. Local public information display, plus about 40% of real estate development and construction-related taxes, when the real estate industry revenues accounted for revenue.

“Background or local government resources Handan most developers have deep, basically controls the local land market, developers generally have no access to the general field, which means that they will be affecting the local property market barometer.” Hebei Province Baoding a real estate company official told reporters.

Golden Century estate house staff also told reporters that the history of danger leopard was named in 2013 in Hebei Province People’s Procuratorate of the People supervisor, to serve until October 17, 2018. The Golden Century Real Estate has also been a focus on supporting enterprises in Handan, Handan whose land is acquired best of the lot, but to get to the very preferential price.

In addition, the integrity of the building, one of the project investors Handan, Handan City Jie, chairman of the Thai Environmental Science and Technology Development Co., Ltd. Ren Xianyong is the CPPCC National Committee members, but also in Hebei Yongxin corporate real estate development, building and defending the integrity of the creditors, according to Wu (pseudonym) Lawyer Zhang lawyer said, raising a total of eight buildings folk integrity million, and now has stopped default interest.

In this context, Handan developers have caught in financial difficulties, the local property market will undoubtedly lead to shock.

“This year, the overall environment is relatively sluggish property market, developers Handan foot after the news came out, the market turnover has been greatly affected, only a few hundred sets of monthly volume.” Liu Miao told reporters.

According to local real estate research firm Handan analysis, Handan in the sale and the sale of real estate projects a total of about 34.8 million square meters. And in 2013, Handan sale of real estate in a total area of ​​3.558 million square meters, in order to measure the local real estate stocks need to digest nearly 10 years.

“Because of the interest payment century real estate developers private funds were up 20% -30%, so they have to pay high interest rates on the price of its real estate projects need to gain at least a year to be synchronized with interest, but from the current price to Handan Look, do not support this increase. “above Handan local real estate research firm pointed out.

Data show that in August this year, the monthly average turnover of Handan housing market reached 4900 yuan / square meter, but as early as 2012, Handan real estate transaction price reached 4,760 yuan / square meter, nearly two years of very weak growth .

In addition, the local real estate websites love home network also show that in 2012 the cost of fully integrated real estate development Handan enter 4000 yuan / square meter of the times, compared to the year Handan commercial 4760 yuan / square meter price, the average profit of not more than 19%.

“At present, the city government is also anxious to deal with the matter in Handan, not only to revive local businesses, but also to revive the local market, or the property market really Handan possible collapse.” Liu Miao said.

The latest news reporters get from creditors at the display, Handan city government is looking to the Golden Century estate bidders to revive key enterprises has always been. Previously worked with local CITIC Securities (13.11, 0.12, 0.92%) failed talks two weeks, and now Contact Hebei wealth of securities, but the ultimate success remains to be seen, a number of other developers, such as breach of contract Site Li, Hebei Zhengda Company, integrity and other buildings have not been formally introduced to solve the treaty.

 

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