Growth in China’s home prices slows, prompting easing

[CityFarmer]

The latest "official" update of property market in China. In general, the property price still went up, but at a slower rate...

Growth in China’s home prices slows, prompting easing

Beijing — China’s new-home prices rose at a slower pace in more cities last month as developers offered discounts and the economy slowed, prompting the easing of property curbs in some places.

Compared with 56 cities in March, prices last month climbed in 44 of the 70 cities tracked by the government — the fewest cities with price gains since October 2012, when rises were recorded in only 35 cities on a monthly basis.

Home-price growth moderated both in first-tier and less affluent cities. Prices in Beijing rose 0.1 per cent from March, said the National Bureau of Statistics in a statement yesterday — the slowest since September 2012, while Shanghai prices rose 0.3 per cent, the smallest gain since November 2012. Hangzhou in the east had the largest decline last month among cities tracked, with prices falling 0.7 per cent from a month earlier.

“We’ll see more relaxation of policies in the coming months because local governments will have more incentive to do this as the market slides further,” Citigroup Inc’s Hong Kong- based senior China economist Ding Shuang said yesterday. He added that home-purchase restrictions should be relaxed to increase demand.

On May 13, the central bank called on the biggest lenders to accelerate the granting of mortgages, after sliding home sales and property construction helped drag the world’s second-largest economy to its slowest pace in six quarters in the first three months of the year. Developers including China Vanke Co had cut property prices since March to lure homebuyers, said China Real Estate Information Corp.
...
http://www.todayonline.com/business/grow...ing-easing

[BlueKelah]

as bearish as I am, it is hard to expect a good outcome from the property boom in china these past few years.

And now that the local tightening is starting to strangle them, the big boys have gone overseas to big capitals. Even to Jeju Island in Korea.

Its all one big con game.

Step 1 : bring money into the country. Make a big deposit in the local banks so all the bankers are happy.

Step 2 : Buy some property assets at high prices with cash so the local property market looks like its booming. Everyone is happy.

Step 3 : Leverage on current assets to build mega projects. Everyone is crazy with property fever now and very very happy.

Step 4: Keep repeating until local governments realize that the boom is not sustainable and clamps down on it(so far only singapore is smart enough to do that).

Step 5: Enjoy the profits whilst all the low quality projects are completed. Move assets to another country and repeat before the crash happens and wipes out everything leaving local government to pick up the pieces.

[greengiraffe]

http://www.ft.com/cms/s/0/50eae7cc-dce4-...abdc0.html

China property slowdown spells trouble for Asia bonds

By Henny Sender
Investing in Chinese developers becoming iffy
Residential buildings stand under construction in Haikou, Hainan Province, China, on Saturday, April 5, 2014. The yuan is poised to recover from declines that have made it Asia’s worst-performing currency as China seeks to prevent an exodus of capital that would threaten economic growth, according to the most accurate forecasters©Bloomberg
In May Central China Real Estate, one of the Chinese mainland’s many property developers, proposed issuing Singapore dollar-denominated notes, to refinance a convertible bond due in August.
The proposed offer received a BB- rating from Standard & Poor’s, reflecting the company’s “increased debt leverage, growing competition in Henan province, and limited geographic diversity,” said the rating agency. “We assess the company’s business risk profile as ‘fair’ and its financial risk profile as ‘aggressive’.”
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For many years before it materialised in meaningful scale, capital market practitioners anticipated the development of an Asian bond market that would reduce the region’s reliance on bank finance. Today the Asian bond market is well established. Morgan Stanley expects the size of the market to reach $1tn in three years and issuance in 2014 of $150bn.
The growth in Asia’s bond market has been driven in large part by Chinese issuers, whether in US dollars or local Asian currencies. Up to half of all issuance year-to-date has been from Chinese companies, leading Morgan Stanley to note “Asia is evolving into a China-centric investment grade credit market”.
There have been ugly episodes. Asia Aluminium, a Hong Kong-listed Chinese aluminium processor, filed for liquidation five years ago, leaving bondholders who had invested in an offshore entity that had no assets with nothing.
One-off outliers
But the market has, perhaps surprisingly, seen such episodes as one-off outliers. The enthusiasm for Chinese names in a world that remains hungry for yield remains strong. Much of that demand comes from US investors. That is, as Morgan Stanley notes, despite a market that has underperformed, and that has seen both fund outflows and growing supply.
Now there may be worse to come. “The prospect of tighter credit conditions represents increasing downside risks to the highly China-sensitive Asia high-yield class,” Morgan Stanley analysts add.
The risks are highest for property issuers. That is because no single sector seems to have had as voracious an appetite for credit as real estate. Demand for credit from property companies has been growing at about double the rate as, say, for industrial companies.
Offshore bond markets have been a huge source of capital for property companies like Central China. As the property market slows in China, might there be big defaults that could shake the rosy projections of analysts anticipating a $1tn Asian credit market by 2017?
In fact, the combination of several factors makes investing in the bonds of Chinese property developers an increasingly iffy proposition.
Many property developers went offshore to raise money because of strict rules in China about how land acquisition and development can be financed. Banks are not allowed to finance land acquisition. That has led developers to the shadow market or offshore. Beijing is hardly likely to be as sympathetic to the claims of foreign investors as Chinese investors when these developers run out of cash.
Highly levered
Most developers are highly levered. Pre-sales from buildings not yet complete finance later stages of construction. That never used to be a problem. But suddenly it is. Chinese real estate sales dropped 7.8 per cent in April, while volumes dropped more than 20 per cent in the top 40 cities in China, data from Credit Suisse show.
Then add in the currency mismatch. Until February, few people worried that the revenues of Chinese property developers were all in renminbi, because the renminbi was strengthening against the dollar and against a basket of trade-weighted currencies. That strengthening reflected huge surpluses in China’s balance of payments and government policy, committed to the renminbi becoming a reserve currency in coming years.
But in the last week of February the People’s Bank of China suddenly reversed course. The redback is now down against the dollar, partly reversing a 30 per cent rise in the preceding years. While regulators orchestrated the initial shift in the renminbi’s fortunes, the markets have turned bearish on the currency, suggesting further weakness to come. Because this development was so unexpected, bankers say almost no Chinese property developers hedged their foreign currency debt.
Government officials and investors such as Blackstone Real Estate and distressed debt players, including Clearwater Capital and Shoreline Capital, all expect some debt restructuring and consolidation in the property market in coming months.
During the Asian financial crisis, many Indonesian issuers defaulted on foreign currency debt as the rupiah slid from around 2,400 to the dollar to a fraction of that. China has capital controls and reserves of almost $4tn, making a collapse of the currency unthinkable. But that does not mean investors offshore cannot lose a lot of money in China.

[greengiraffe]

Property glut? Yes Property crash? No

Analysts expect China to ease curbs as home sales, construction shrink
Published on May 24, 2014 1:30 AM


An apartment project in Hefei, Anhui province, drawing interest on May 1. All its units found buyers despite property cooling measures. -- PHOTO: REUTERS

BEIJING - China's biggest homebuilding slump in at least four years is not enough to dissuade a majority of economists from predicting real estate will still contribute to growth this year. Property controls will be eased, they said in a Bloomberg News survey.

While 12 of 18 economists say China has some national oversupply of housing, only seven say the market is in a bubble state countrywide, according to the survey conducted from May 15 to May 20. Half see bubbles in some cities, and a majority say the loosening of restrictions on home purchases and loans will be limited to a regional level.

New construction in China has fallen 22 per cent and sales have slumped 7.8 per cent this year, testing the government's four-year commitment to curbs targeted at making homes more affordable and its reluctance to enact broader economic stimulus.

The slowdown's depth will have implications for everything from demand for Australian iron ore to land sales that help local governments repay their US$3 trillion (S$3.8 trillion) of debt. UBS has estimated the real estate industry accounts for more than a quarter of final demand in the economy when including property-generated needs for goods such as electric machinery and instruments, chemicals and metals.

Central bank governor Zhou Xiaochuan said China may have housing bubbles in some cities, an issue that is difficult to resolve with a single nationwide policy.

The economy "can still manage something around a 7.5 per cent growth rate", he said in an interview in Rwanda on Thursday, referring to the nation's expansion target for this year.

Chinese real estate companies gained yesterday on speculation that the government will ease property curbs. An index of developers listed in Shanghai rose 2.1 per cent at the close, the biggest advance since April 22.

The nation's housing market will not crash like that of the US, Japan and Hong Kong, the official Xinhua news agency said in an article published on Wednesday that called people forecasting such an outcome "doom mongers". China will have strong housing demand because of continuing urbanisation, speculative buying is less prevalent than it was in Hong Kong, and mortgage debt as a proportion of GDP is lower than it was in the US, Xinhua said.

Not everyone is optimistic. Moody's Investors Service this week revised its credit outlook for Chinese developers to negative from stable. Mr Ren Zeping, a researcher at the State Council's Development Research Centre, said economic growth may slow to about 5 per cent in two to three years.

"Real estate investment is the biggest macro risk," said Mr Zhu Haibin, chief China economist at JPMorgan Chase in Hong Kong, who sees an investment slump, including the effects on related industries, dragging growth down by about 0.5 percentage point this year.

"The government should do something to contain the downside risk. It's probably time to remove the home purchase restrictions policy in most cities." At the same time, he added, the probability is low that the government will ease curbs at the national level.

There are signs that the government is trying to limit the real estate slump. The central bank this month called on the biggest lenders to accelerate the granting of home mortgages, while Southern Weekly reported on Thursday that the Housing Ministry has allowed most cities to adjust home-buying curbs as they see fit.

BLOOMBERG

[chialc88]

My sentiment.
Let me translate for those who can not read:
Property Glut - Yes
Property Crash - No


Live with Passion, Lead with Compassion

[BlueKelah]

My sentiment is that glut can lead to crash. And the main worry is the banking crisis that would develop if such a crash were to develop

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