China Property Market

[Behappyalways]

[第一時間]樓市新觀察 二十天漲千元 石家莊樓市價格一路攀升

http://big5.cctv.com/gate/big5/tv.cctv.c...0516.shtml

[BlueKelah]

Lack of proper framework and regulation in China. The "tulip mania" in China seems to be ongoing...


54% Jump in Suzhou Home Prices Triggers Govt Clampdown

In a sign of real estate policy tightening outside of China’s first-tier cities, Suzhou’s city government has responded to rocketing prices in its land and property markets by calling off land auctions and preparing a series of sales restrictions to limit property speculation, according to recent reports in the local media.
The Suzhou government took action to cool down the housing market after prices in the city of 5.5 million people just over 100 kilometres (68 miles) from Shanghai rose by more than half last month. The increased interest in real estate in the second-tier city in Jiangsu province comes after Shanghai authorities squelched a boom that had driven a 184 percent increase in housing transactions in the megacity over the last year.
Land Auction Suspended, Stricter Mortgage Criteria Expected
Suzhou’s city government has postponed the scheduled May 20th auction of five land plots in the city to a later date as a means to ‘optimize the supply of land in the city,’ real estate website guandian.cn reported today.

[Behappyalways]

[第一時間]蘇州：土地拍賣限最高價 房企報價超限無效
http://big5.cctv.com/gate/big5/tv.cctv.c...0520.shtml

[Behappyalways]

Control Land Kings, Root Out Real Estate Woes

http://english.caixin.com/2016-06-15/100955040.html

[specuvestor]

^^ That's why Singapore's QC extension charges of 8/16/24% make a lot of sense from a policy point of view, rather than just from the developers' point of view. Land is a factor and hence a necessary input cost of production, not to mention the impact to the populace's standard of living.

A bit late but noticed blue kelah signature changed that a China crash is unlikely? The current market doldrums is expected 18 months back with signalling from the CPC posturing but it's actually the 4Q14-1H15 euphoria that is abnormal

[BlueKelah]

^^ That's why Singapore's QC extension charges of 8/16/24% make a lot of sense from a policy point of view, rather than just from the developers' point of view. Land is a factor and hence a necessary input cost of production, not to mention the impact to the populace's standard of living.

A bit late but noticed blue kelah signature changed that a China crash is unlikely? The current market doldrums is expected 18 months back with signalling from the CPC posturing but it's actually the 4Q14-1H15 euphoria that is abnormal

@specuvestor : try not to read too much into my signature. Doesn't mean that China crash is unlikely, it has already partially happened with the chinese stock market crash last year(and the subsquent measures to stem the crash there have resulted in their exclusion from MSCI LOL). IMHO still lots and lots of risk for crash in China, just that Beijing is trying their best to delay it

Worrying things in China:

1) Property sector wise Beijing is trying to juggle between rife speculation in the big cities vs downturn in the small cities with their policies. 

2) Corporate debt is already 165% of GDP, Japan in its heyday during 1990s only hit around 150% before the deleveraging to around 100% during the lost decade. This debt is also growing faster than what is shown in banks records, which means the extra growth in corp. debt is from "shadow banking" sources which Beijing unable to regulate.

3) Banking sector : banks have various products with trust companies, brokerages and insurance companies. Loans have been wrapped up as wealth management products (WMPs), Trust
Beneficiary Rights (TBRs), Trust Plans, Asset Management Plan, etc etc.. many of which are carried off-balance sheet (very reminiscent of the US subprime type of lending) NPLs are already rising very rapidly causing them to do Debt-Equity swaps, but banks will just end up with equity in a whole useless bunch of zombie/junk companies? 

4) Infrastructure stimulus of many trillion late last year and this year. Supposed to be for over next few years but Beijing no choice to maintain the "face" and GDP number, has already brought it forward to just this half year. What happens when the effect of this runs out?

5) Overall corporate earnings growth has been negative and downtrend since a year ago. Not since the GFC time has this happened, IMHO a good reflection of direction of their overall economy.

6) Yuan devaluation : whilst not as shocking as last year's devaluation, it has been creeping down again since beginning of May.

Since this is a China property thread, current state of things in China property scene
China Home Sales Growth Starts to Slide in May

[CityFarmer]

One interesting article, on comparison of China debt, with others in Asia. I reckon, the real issue of China debt, is not on the credit amount, and the credit growth.

http://www2.theedgemarkets.com/sg/articl...-says-hsbc

[specuvestor]

One interesting article, on comparison of China debt, with other in Asia. I reckon, the real issue of China debt, is not on the credit amount, and the credit growth.

http://www2.theedgemarkets.com/sg/articl...-says-hsbc

Nice chart. IIRC excluding Germany, EU countries and US will be all on the left side of the chart.

Sometimes we have to be careful of the segregated numbers being thrown out by analysts and economists, rather than the bigger picture,  because it can be used to justify their original argument.

Blue Kelah like I said the bull market was abnormal. By saying it crashed we are segmenting out the big picture that it had a bull market. On an even bigger picture taking out the bull and crash, the market effectively back to square one and did nothing, which IMHO should be the case fundamentally. So like I said execution (including timing over a cycle which is controversial in this forum) is half the battle, but that's another topic but something to ponder.

[shadow_walker]

Agree that it is important not to look at overall debt figures as there are many other considerations, just like a bank may be highly leveraged but a commodity companies with 100% gearing might be more prone to bankruptcy.

Both government and consumer debt are around 50% of GDP each. It is the corporates that are highly leveraged. However, lets consider a few points:

1) High debt to gdp is a red flag if there is huge amount of foreign debt. Think AFC, latam debt crisis. It is not that much of an issue if the debt is financed internally, for e.g. Japan whose high govt debt is financed by citizens. Foreign debt is dangerous because these hot money can flow out fast in addition to the depreciating currencies.

2) The bulk of the corporate loans are made by SOEs and LGFV. The bulk of the loan providers are the state-owned banks. Shadow banking size has dropped quite a lot since 2013. Therefore, it is essentially left pocket to right pocket. If your wife and children borrow $500k from you, are they considered at high risk of bankruptcy?

3) Chinese has high saving rates and the government has huge reserve. Capital flow is still controlled although not 100% tight.

I think the key issue with the debt is that they are supporting lots of overcapacities, uncompetitive companies and industries which should have been shut down by normal economics and will not have access to financing normally. Private companies find it hard to thrive with limited access to financing. Bond default is a healthy development in China given the moral hazard of an implicit government guarantee.

[specuvestor]

1) spot on!

2) high risk no. However effectiveness is also no.

3) The huge reserve should dwindle down over next few years as RMB internationalizes. There is then no reason to hoard foreign currencies (except Japan which is why they have been accused as currency manipulator). US and Germany has foreign reserves of like US$40b or something.

Agree with your last para... They need to improve effectiveness for capital allocation.