At Least 6 Chinese Cities Have Bailed Out Their Real Estate Markets In The Last Month
Submitted by Tyler Durden on 05/16/2014 15:10 -0400
Submitted by Simon Black of Sovereign Man blog,
According to the Chinese financial publication Securities Daily, emergency real estate rescue packages have been launched in large cities such as Wuxi, Nanning, Hangzhou, Tianjin, Tongling and Zhengzhou in the last month alone.
“Zhengzhou created a mortgage guarantee policy to win back banks’ confidence” according to the story.
Further, “if a borrower does not fulfill the loan repayment obligations as agreed in the contract, the guarantee institutions will have to repay the housing loans…”
What a surprise– a government guarantee.
The market is imploding and defaults are going through the roof. Property vacancy rates in Zhengzhou are an astounding 23%. So the government is putting taxpayers on the hook.
The article goes on: “A legislative affairs official of Zhengzhou revealed to the media that this was the first time for Zhengzhou to carry out such individual housing loans guarantee policy.”
In other words, the government is panicking.
Home sales in China fell last month by 18%, in no small part due to tightening credit conditions.
Developers have tried to pick up the slack and liquidate inventory by offering no money down deals… their own desperation tactic.
But it’s not working.
Over the May 1-3 holiday weekend, new home sales across China’s 54 largest cities were 47% lower than last year.
The national government in China has all but capitulated, and they’ve turned the reins over to local governments to ‘fix’ the problem.
This has been a long time in the making.
According to data from the US Geological Survey and China’s National Bureau of Statistics that was compiled by the Financial Times, in just two years (2011 and 2012), China produced more cement than the United States produced in the entire 20th century.
Much of this development came from centrally planned monster infrastructure projects– bridges to nowhere, zombie train stations, and infamous ghost cities.
So much excess inventory has built up, a major slowdown was inevitable.
This is a huge issue for China given thathousing sales comprised nearly 12% of GDP last year.
Even President Xi Jinping recently stated that his nation must adapt to a ‘new normal’ of slower economic growth.
And like the butterfly that flaps its wings, a slowdown in China has substantial effects on the rest of the world.
I’m seeing this first hand here in Chile; Chile is a huge copper producer, and under high growth conditions, China is a top consumer.
As China has slowed, its copper consumption has fallen. Copper prices have tanked.
Over the past few months, the Chilean peso has lost as much as 20% over its average in recent years. And I can see on the ground, all of this has adversely affected the Chilean economy.
But as I’m fond of writing, in every situation, there are winners and losers.
In this case, my team and I are seeing a lot of attractive deals for agricultural property.
What was once a seller’s market just a few months ago is rapidly turning into a buyer’s market as many indebted owners are dumping their properties. Many are in distress.
Yet due to the slowdown, there are fewer buyers in the market with cash in hand, and I’ve even seen several properties go to auction recently.
For foreign investors, this is a great situation to be in. And I expect that as China’s slowdown continues to unfold, we’ll see a lot more of these types of opportunities all around the world.
Realty firms in China close as housing market slumps
The real estate market in China has continued to slump, with many medium and small-scale developers facing closure due to an inability to access funds, which has affected large realty firms.
Since March this year, over a dozen medium and small-sized developers in Ningbo, Nanjing, Wuxi, Hefei, Xiangyang and Shenmu have been faced with a bankruptcy crisis, with many nearly bankrupt firms likely to flee, according to the website of the state-run China News Service.
A total of 2.4 billion yuan (US$385 million) worth of non-performing loans were reported by 15 banks.
It will be a very difficult period for medium and small developers in May and June and it will be even harder for those with bad loans.
Even though small and medium developers anticipated the crisis first, it is the large developers that are more likely to be victims of the real estate bubble bursting.
For example Guang Group Real Estate, one of the largest developers in China, drew the market's attention recently as it was unable to complete construction of several projects because of difficulty in raising funds.
Guang admitted that it had a problem with its financial situation. Even though it is not facing bankruptcy, the company is willing to be acquired by other firms.
In addition, the secondhand housing market is lackluster and some real estate agencies have begun downsizing their businesses.
Century 21 Real Estate has recently closed three outlets in Beijing, indicating that the first and second-tier housing market is also being hurt by the downturn, the Shanghai-based National Business Daily reported.
The American realtor shut down over 20 stores across China between August 2012 and March 2014.
A real estate agent working in the capital city said that Century 21 had seen a declining market share over recent years, which had slipped from 5% to 1%.
Central bank move supports first-time home buyers in China
At a time when China's property market is undergoing a downturn, property developers are cutting house prices and domestic governments are relaxing restrictions on house buying, in line with a central bank seminar held on May 12, during which the bank requested that banks meet the mortgage demands of first-time house buyers with reasonable mortgage rates and approve qualified personal mortgages, the website of the state-run China News Agency reports.
The central bank move has been seen by some industry insiders as another measure by the government to rescue the market, the report said.
Zhang Hongwei, research director of Shanghai-based property consultancy ToSpur, expects the current situation of tight credit to gradually improve in the second half of the year, following the central bank's request to support demand from first-time house buyers. Other insiders said the tightening of mortgage offers won't change in the short term, however, because although banks support the policy superficially, they have largely reduced mortgage offerings or have stopped them altogether due to the lack of profit to be made on them.
Since March, most banks have been tightening mortgage offerings by cancelling preferential mortgage rates or adopting more caution in approving mortgages. According to statistics, banks have stopped giving discounts for mortgages almost completely, compared with discounts of 10%-15% previously.
After the central bank published its guidelines, banks emerged to revise rules to follow the central bank requests. Ping An Bank said on May 12 that it will support the financing demand for owner-occupied home buyers, and adjust its mortgage policy accordingly.
Quite a few media outlets interpreted the central bank move as a way to rescue the market. According to statistics, in the first four months of this year, the nation's property area sold and total sales both fell largely from a year earlier, triggering anticipation in the industry for a government boost to revive confidence in the property market.
Some analysts, however, including Shanghai Zhongyuan Real Estate Research advisory senior fellow Lu Wenxi, didn't see the central bank move as a way to rescue the market, because its opinion didn't reverse the government's policy to contain the property prices.
For owner-occupied home buyers, the recent development no doubt has seen a series of bullish factors, including rising price cuts in properties, eased restrictions on house buying, and banks' rising support for first-time home buyers, the report said.
Zhang Hongwei 張宏偉
Lu Wenxi 盧文曦