Cross posted from Investing in Chinese Stocks
A soft-landing is expected following the end of buying restrictions in first-tier cities, which is expected in the second half of the year. Differentiation is also the story, both between top tier cities and the lower tiers, and also in terms of time. Some cities may adjust rapidly, but others may need a really long time.
Director of the Research Center for City and Competitiveness, Housing Green Paper editor Ni Pengfei said that this year the housing market will show a trend of double differentiation: First- and second-tier cities will see differentiation from third- fouth-tier cities, second-tier cities demand is strong, inventory consumed quickly, adjustment time is short; third- and four-tier cities have weak demand, supply consumed more slowly, the adjustment time is longer. Secondly, the short-term adjustment and long-term adjustment of differentiation. From the current situation, the possibility of short-term adjustment still exists, and long-term adjustment will take a very long time. In the state of double differentiation adjustment difficult to get out of recession trend, showing a weak overall performance. However, some second-tier cities, especially in first-tier cities and rebound adjustment is possible to achieve in 2015.
Across 54 cities, sales hit 318,000 homes in December, the highest monthly total for the year. First-tier cities had sales of 53,700, a mom gain of 38%. However, while sales were up strongly, some cities didn’t see a material improvement in their inventory due to new properties coming to market.
This is mostly the same story as at the end of 2014: prices are still headed lower in 2015, but the first tier and top of the second-tier could bottom first and even rebound in 2015. Other cities will remain in a downtrend, with some second-tier cities possibly adjusting faster than their third- and fourth-tier counterparts that may be headed for a multi-year adjustment (aka bear market).
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Another impediment to a soft landing is the structural problem with overleveraged property developers. Late last week, it was reported that banks and creditors went to Shenzhen Intermediate People’s Court to freeze Kaisa’s assets. (See Most Important Part of the Kaisa Bankruptcy: What Will The Govt Do?)
The list of firms has grown to 15 in Shenzehn, including trust firms, while court cases have spread from Shenzhen to other cities where the firm has projects: Dalian, Suzhou, Zhuhai and Huizhou. A court in Shanghai has also frozen Kaisa assets. Since each bank branch files its own case, there are at least 25 litigants in Shenzhen alone looking to seize Kaisa’s assets. The total sum in question is now in the tens of billions (yuan), and already far exceeds Kaisa’s 2014 interim report which listed outstanding loans at 29.7 billion yuan because several applicants want to seize projects.
One banker said CITIC Bank may have triggered the panic and run on Kaisa’s assets, or it simply reflects the gravity of the situation as banks rush to prevent their loans from going bad. A lawyer is also quoted as saying Kaisa will have limited access to funds now and sales will be affected.
From Reuters: Court freezes some of China developer Kaisa Group’s assets
A Shanghai court has frozen $105 million in assets of Kaisa Group Holdings, a trust unit of China’s Shanghai AJ Corp said on Monday, as filings against the troubled property developer pile up.
Shenzhen-based Kaisa warned this month it may default on more debt after it failed to repay a HK$400 million ($51.3 million) loan, the latest developer to flag financial difficulties amid a downturn in the real estate sector.
At least 28 court filings were made against Kaisa and its subsidiaries between Jan. 6 and Jan. 9 in Shenzhen, where Kaisa has most of its assets, according to the latest records in the city’s Intermediate People’s Court, involving 17 financial institutions.
WSJ: Kaisa Group Asset Freeze Sought by Chinese Financial Organizations
More broadly, the cost of issuing dollar bonds for below-investment-grade Asian companies has surged to 7.8%—the highest level in 16 months—from as low as 6.9% in August, while the cost for Chinese firms, investment grade or below, has jumped to 5.5%, the highest level since May last year, from 5.3% in early December, according to J.P. Morgan Asia Credit Indexes.
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