China’s neo “Paris” turns ghost city


Cross-posted from Investing in Chinese Stocks.

China’s first satellite city becomes a ghost city, developer Zhejiang Guangsha stumbles and its founder is carted away: ‘China’s Paris’ turns into a ghost city

A residential area has been built in China with architectural designs copied from Paris along with a replica of the iconic Eiffel Tower. Designed to accommodate at least ten thousand residents, it is now considered a ‘ghost town’, reports Reuters.

Built in 2007 by real estate company Zhejiang Guangsha, the residential area with European-style villas was built to attract the country’s wealthy people.

However, the town now has a population of just two thousand people as many people are not able to afford the houses in this area.

iFeng: 中国第一卫星城十年变成鬼城 创始人被带走 (China’s first satellite city becomes ghost town, creator taken away)


A person familiar with the project, local residents said:. “Tianducheng property management side of chaos, can not keep living facilities, transportation inconvenient, if the northwest waste incineration plant is built, that is truly going to become a ghost town in the vicinity Tianducheng area, all the way to the road from Dexing Jiubao are developing, River Road is also a large demolition, Houren street built a large new house. Tianducheng in the most awkward location. Only when the original hottest real estate, just to get to there are people who built berserk era can sell right now, hard! “

The development became an albatross for the firm, which saw sales slump in 2014 thanks to Zhejiang province being ground zero for the real estate slowdown.

According to the data Keer Rui Yi Ju research agencies show that total 2013 sales of real estate projects in Zhejiang Guangsha 1.8714 billion yuan, in 2014 total sales of 1.13297 billion yuan, compared to shrink from 2013 by about 1/3. And the company’s 2013 sales area of ​​242,973 square meters, compared with 140,347 square meters in 2014, dropped by about 40%.


Creator of the ghost city, Lou Zhongfu, has been detained. China Billionaire Builder’s Share Suspension Enters 2nd Week Amid Reported Probe

The suspension of trade in shares in Zhejiang Guangsha, the builder controlled by Chinese billionaire Lou Zhongfu, entered a second week at the Shanghai Stock Exchange today after Lou was reportedly taken away by officials from the government’s top anti-corruption body on Dec. 27.

Lou was said to have business dealings with Gu Liping, the wife of Ling Jihua, the government-published China Daily reported last Wednesday. Ling, a former top advisor to former President Hu Jintao, is under investigation for alleged disciplinary violations, the paper said.

Meanwhile, fear is spreading that China’s lack of transparency is working against it as investors thoughts turn negative. Gaps in information are filled with concerns of bankruptcy and fraud. While the government has said the property locks are normal, at least some in China are starting to speculate that these actions may be linked to the major property audit conducted in Q3 2014.


SCMP: Property shares hit in panic over developer’s sales ban in Shenzhen

Fear and confusion seized investors in China Overseas Land & Investment shares yesterday after reports a project built by the developer in Shenzhen had been blocked from sale by the city’s government.

Shares of the mainland developer, controlled by the Ministry of Construction, dropped as much 6.93 per cent when trading began yesterday, the most since March 2013. But the decline narrowed to 2.77 per cent by the close, with the stock finishing at HK$24.55, after the developer issued an announcement denying the report.

“Investors were shocked by the news in the morning. They panicked because they had believed state-owned or big property companies were safer to invest in,” said Alfred Lau, an analyst at Bocom International.

Other mainland developers also saw their stocks fall as investors worried that more property firms, including state-backed companies, were under scrutiny.

……In a statement posted on an official microblog yesterday, the Shenzhen authorities said the lock-up was a normal procedure for government-subsidised housing projects and not an indication that China Overseas Land had broken any rules.

Concerns over the sector began when Kaisa Group Holdings, which this month missed a coupon payment on a US$500 million bond, had units in four of its property projects blocked from sale last month.

Chinese coverage of the latest developements: 深圳地产圈危情:传18家房企警告名单 巡视组指示彻查


The article below speculates that the land audit could be behind the recent property lockouts. I covered the land audit earlier this year: How Much Corruption in Land Sales? China Set to Crack Open ¥15 Trillion Can of Worms. Aside from a story such as Land Audit Fallout: Six Officials Investigated for Violations in Shanghai, there hasn’t been a lot of fallout from the land audit.

From the article:

August 2014, the State Council, led by 18 departments, began to audit land sales within the 2008-2013 five-year transfer payments, including land acquisition, storage, supply, regulation, arable land protection and enforcement. Relating to financial, land resources, the building housing the multiple systems, the NDRC, forestry and agriculture.

After two months only, the same as in South fangqi Chen Zhuo Lin, Chairman of Agile has also been involved in a case of sacked officials, was approved to perform the specified residence under surveillance Kunming People’s Procuratorate. November, President Kaisa Group Guoying Cheng Jiang Zunyu suspicion of corruption case transferred “lost contact.” And these cases are transferred and corruption events.

As we all know, Shenzhen new land supply in recent years, mainly to urban renewal. These projects mostly located in the heart of downtown, inexpensive location, the commercial value is very high, huge profit margins. The Ministry of Land and Guangdong to “allow the use of an agreement to sell” special policy for the land, but also to many developers find space for rent. In the end, a lot of change for the project is not so transparent, good political and business relations a key to the successful operation of the project. After setting off the land corruption in Longgang District, Shenzhen, started to change old Kaisa will bear the brunt.

Although the “events and corruption,” the statement has not yet been officially confirmed, but since Kaisa outbreak, only from local authorities for the unconventional means the company has seen.

…In this regard, some industry insiders also confirmed Shenzhen, said: “At present, Shenzhen real estate circles jittery, several famous Shenzhen developers have left the country ‘to take shelter from the wind’, would be involved, some developers not involved change have also gone abroad.”

The corruption story has been a bit overblown up until now in its economic impact, not the political impact. There were high profile cases at state owned oil giants, but operations continued. Baijiu prices fell and officials dumped apartments ahead of the property registrations system. However, large property developers such as Kaisa being pushed into bankruptcy over corrupt land deals is another story. If there’s any meat to this story, it could be a huge new story and a wildcard for the property market in 2015 since it could mean the audit results are being kept under wraps due to investigations triggered by the audits.


iFeng: 佳兆业事件升级 深圳地产圈反腐“锁盘”成风 (Kaisa Situation Escalates; Shenzhen Locked Building Anti-Corruption Rampant)

Developer debt is on the nose: Bloomberg

Loan investors are shunning Chinese property developers amid speculation the government will target more builders after pledging to step up anti-graft probes.

Loans from Shimao Property Holdings Ltd., Country Garden Holdings Co., Evergrande Real Estate Group Ltd. and GreentownChina Holdings Ltd. maturing within four years are at levels that indicate impending stress, according to offered prices compiled by Bloomberg from two traders.

President Xi Jinping last week said there’ll be no let-up in his “fierce and enduring” battle against corruption, which has already embroiled thousands of senior officials. Kaisa Group Holdings Ltd., a homebuilder based in the southern city of Shenzhen, roiled credit markets after founder Kwok Ying Shing quit as chairman Dec. 31, triggering a loan default.

“There’s selling pressure coming from people who want to trim their portfolios to better manage any outsized concentration in developers,” Andrew Tan, head of secondary trading for loans and special situations in Asia ex-Japan at Nomura Holdings Inc. in Singapore, said by phone on Jan. 15. “I haven’t seen such a big motivation to sell in Chinese property loans for some time.”


That’ not stopping land sales in Beijing: iFeng: 北京土地市场一扫去年阴霾 半月吸金284亿 (Beijing land sales sweep away last year’s clouds, attracts 28.4 billion in two weeks). SCMP: Land buying in China’s first-tier cities could drag them out of property downturn soon

“Land acquisition appetite is certainly higher in first-tier cities where land supply is limited,” said Alan Jin, an analyst at Mizuho Securities.

He noted land price in tier-1 cites were up even in 2014.

“We expect land price in all tier-1 cities would continue to grow, very likely at a faster pace than last year,” he said.

The bifurcated market gets more divided.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.