China property stress rises

Via Investing in Chinese stocks:

The first warning signs were failed land auctions in Beijing at the end of 2017. Then signs of a collapse in shadow bank funding that. And now we know why at least one developer likened the credit market to the 1997 Asian Crisis: according to a report originally posted by 政商参阅, some listed banks have already exhausted their real estate lending quotas.

iFeng: 别了房奴!国家紧急出手楼市再响惊雷

Recently, a number of banks across the country have issued relevant documents, suspended development loans and tightened or suspended financing of real estate.

Now many branches of the four major banks, as well as some listed bank new real estate credit business credit is quite tense, some quotas have run out. Housing business credit stock business also depends on interest rates, low interest rates will not necessarily be sequel.

Even with the amount of the bank, the audit of the real estate prices are also very strict. At present, Shanghai supervision has issued a document requiring further regulation of M & A loans or soon to be opened across the country.

…Do not you see, the formerly unstoppable land kings immediately vanished without a trace. The land market turned cold, ferocious. Is the most prosperous Beijing, also began to land the phenomenon of empty auctions.

That’s referencing land sales in Beijing. Although total land sales were up in January, there were several failed auctions.

Chinanews: 北京土地遇“寒冬” 五天内三宗宅地流拍

According to the data of Zhongyuan Real Estate, there are two cases of failed auctions in Beijing in 2017, one in 2015, four in 2014, one in 2013, 6 in 2012.

According to Beijing Municipal Planning Commission Commission data show that last year’s failed auctions occurred in November and December, that is, the Beijing land market has seen three consecutive months of failed auctions.

SCMP covered the first failure in November: Beijing first failed land sale in two years shows developers’ woes

The failed sale of the 3.6 hectares (36,000 square metres) mix-use site that includes a residential parcel in the Pinggu district in the outskirts of Beijing marks a stark contrast to the successful sale of a similar but bigger site in the district that sold in August at the highest price level allowed by the government.

It is the first failed residential land sale since September 2015 after the central and local governments rolled out a slew of measures across Chinese cities to dampen land and property prices, which have hurt developers’ expansion and sales income.

“Failed land auction, especially for residential land, is very rare in Beijing,” said Zhang Dawei, a senior analyst with Centaline Property.

“Distant location is one factor, but another important reason is after a year of land acquisition race, most developers have run out of the firepower.”

For those who haven’t been following along, China’s 2016 liquidity injection flowed straight into land. Many developers bought land at high prices. A developer earns the title of “Land King” when they pay the highest recorded price for land in a city, when “land kings” were coming one after the other in 2016 it signaled a credit-fueled bubble in land acquisition. In some cases, the land cost exceeded the price of homes in the area. Add in construction costs and a profit margin, and developers require substantially higher home prices (such as a luxury development) to break even.

It wasn’t only private developers getting in on the act. SOEs and Financial Companies Push Private Developers Out With Insane Land Grab.

There were many warnings of trouble in late 2016 as analysts considered the prices paid for land and the home prices required to justify them. Home prices didn’t rise enough in 2017 and now credit to developers is “like 1997”. Prices will take some time to decline, but the first-tier is already cooling. In Beijing, 我爱我家(515j.com) recorded the 8th straight month of falling existing home prices in February. Prices fell 2 percent from December 2018. Transactions were down 18.1 percent year-on-year. Caijing: 北京二手房价格连跌8个月 1月份环比跌2%

Comments

  1. PONZI PONZI PONZI
    That’s what Andy Xie calls it and he’s had a very good track record in Asia calling a spade a spade
    I am told 400 sq m plot in Melton 50 km out of Melb is around $300k, it was $130k in 2013
    I’ve heard the new immigrants of 5/10 years ago are going nuts high 5.s buying new cars on credit and holidays using the equity to buy another card house
    Free money 💰 💰💰💰💰⏱⏱⏱⏱⏱💣💣💣💣💣💣🏠🏠🏠🏠

      • Anecdotally, I’ve heard of a particular group of people in a semi-syndicate(herd?) of sorts buying up (i guess kinda options) blocks of land in new estates and waiting for the estates to slowly fill.
        Then they flip the land later, change the name on the contract, and it’s still counted as the original sale.

        Apparently, Victoria changed the settlement rules. So the original person on the title has to be the one at the sale closure.
        This, and the lack of appreciation is making the flippers quite stressed. They have to settle on numerous blocks and they can’t palm them off without (combined) substantial losses.

  2. Chinese economy is tightly managed and controlled by the Government. It is quite unlikely that they will allow a major fall in property values.

    The biggest risk to chinese economy is fall in global demand, and currently there are no signs of stress there.

      • Reason’s for the collapse of soviet union is a complex subject and topic of discussion amongst many economist and academics – Dont think there was a single simple reason.

        Economic pain was definitely a key contributor and the key reason for this was the drop in oil price in the 80’s – Soviet Union relied heavily on exports.

        As I mentioned in my first comments – The biggest risk to Chinese economy is fall in global demand of goods that it exports.

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