China - Housing 01 (May 08 - May 10)

[winston]

Shanghai new property prices slump in July

Sales volume and prices for new residential properties in Shanghai fell sharply in July, the official Shanghai Securities News said, as the outlook for the country's once high-flying real estate sector continues to weaken.

The paper, citing an analysis of online official data on property transactions, said the volume of floor space in new housing complexes sold in July fell 69 percent from a year earlier and 32 percent from the previous month, while the average transaction price fell 24 percent from the month before.

The month-on-month price drop was the steepest since July 2005, it added.

The newspaper said a major market research organisation calculated the figures from an analysis of Shanghai municipal government data.

REUTERS

[winston]

CHINA SECURITIES JOURNAL

-- Experts say that although turnover and prices in China's property market have been falling, the property market will not crash, partly because underlying demand is so strong.

[ishak]

China developers hard pressed, not distressed yet
Govt moves to ease property curbs cool funds' firesale hopes
Reuters, 09 Sep 2008

Bargain Chinese property projects will be up for grabs in coming months as developers scramble to survive falling home sales and a funding crunch.

But circling foreign funds can no longer expect a big firesale as the Chinese government eases its tough steps to cool the market, fearing mass bankruptcies and a property price slide that would send a shiver through the economy.

When Beijing upped the ante in a fight against property speculation at the end of last year by ruling that buyers of second homes must pay 40 per cent in equity, apartment sales and prices slid in the southern cities of Guangzhou and Shenzhen.

Developers, already squeezed by a land appreciation tax and a clampdown on bank lending, then found that capital market turmoil closed off share and debt issuance.

Some fund managers believed their time had come, and cheap deals would open up a Chinese property market where a yearly influx of 8 million people into cities promises long-term riches.

They are still waiting. 'We expected there to be a lot more guys going under and a lot more forced sale situations,' said Chris Gradel, managing partner at Pacific Alliance, which manages about US$4.5 billion in alternative asset funds targeted at China and Vietnam.

Describing the resilience of Chinese developers as 'one of the biggest surprises of the year', Mr Gradel said property firms had muddled through with presales, delayed payments to contractors, and borrowing from banks and other sources.

Local authorities have also been stretching payment schedules for land, and choosing not to implement a government edict that developers lose land if they fail to build within two years.

However, with bank loans to developers down 30 per cent in the first half of this year to 399 billion yuan (S$83 billion), according to the central bank, thousands of firms are vulnerable, especially if they took part in a land buying frenzy last year.

'The guys who blew all their cash in the second half of last year are the guys who are having the most trouble,' Mr Gradel said. 'I think there's a good chance we'll see some more distress over the rest of the year.' So far, few bankruptcies have been reported, even as Beijing and Shanghai home sales fell by half in July from a year earlier.

Nanjing property tycoon Liu Fulin abandoned his home building business in February in favour of pig farming when hog prices soared, local television reported.

Another firm in the eastern city, Nanjing Panlong Jinling Property Development Co, went bankrupt in July, according to property website focus.cn.

The downturn was best illustrated by Changhui, one of the country's biggest property agencies, which closed half its 1,800 outlets late last year as sales dried up.

Property price falls must soon follow, analysts say, but developers appear to be holding out, with homes an average 7 per cent more expensive in July than a year earlier.

Government austerity measures are at the root of the housing slowdown.

But the policies were conceived to narrow the gap between rich and poor, not to suppress the property market, economists say, as the government is wary of damaging an industry that accounts for 8 per cent of gross domestic product (GDP).

Beijing is widely expected to relax its stance in early 2009.

'In China, it really depends on the macro-economy and the kind of government policy that is going to be put in place,' said Wilkie Lai, director and chief risk officer at Tribridge Investment Partners, a fixed-income focused hedge fund manager.

'Tightening is not the keyword anymore'.

The prospect that the market will bounce back strongly is giving hope to foreign investors.

US banks Citigroup and JP Morgan have said they are keen to spend their own money and their managed funds in China, expecting developers to offer plum deals.

Morgan Stanley , which bought distressed property assets from Chinese banks in the early 2000s, is targeting China for nearly a fifth of a US$10 billion global real estate fund it is raising, Reuters reported last week.

With shares in Chinese developers down about 70 per cent since a peak last November, as many as 30 Chinese developers have shelved IPOs planned for this year and are looking for foreign funds for capital to finish their projects.

The listing candidates often took on pre-IPO funding from private equity and hedge funds, and will have to repay investors soon if they do not push through stock market listings.

'These developers are refinancing, or selling land and offering joint venture projects to raise money,' said Anthony Ryan, head of Asia property investment banking at JP Morgan.

'An increase in restructuring activities will appear between now and the first quarter of next year.' But even when developers are forced out of business, foreign funds are found jostling at the back of the queue of buyers.

'If there are good opportunities they're taken up by other developers in off-market deals, very quietly,' said Hendrik Broeker, national director for Asia capital markets at consultants Jones Lang LaSalle in Hong Kong

[ishak]

Chinese mainland property developers finding new ways to raise funds
CNA, 09 Sep 2008

Chinese mainland property developers, faced with a cooling property market, are finding new ways to raise funds.

Listed developers may issue convertible bonds, and there is talk that authorities may also allow property trusts later this year.

China's clampdown on the property sector is working out better than planned. Measures like loans restrictions for construction and the requirement for developers to build quickly or lose their land are hitting developers hard, especially with home sales falling.

Traditionally, bank loans account for half of developers' funding, used in turn to pay for land and to complete their projects. So developers have been forced to mark-down their asking prices for new apartments.

Nicholas Brooke, chairman, Professional Property Services, said: "We're moving away from a margin game to a volume game, and this is the quantum leap the industry has got to make... (to) survive and do well in the future. It is a question of cranking up the machine."

Setting up real estate investment trusts (REITs), could provide developers with new avenues to funding by allowing them to sell off commercial buildings. Discussions are already taking place among various government departments, though no time-frame has been set.

Some property consultants think that the mainland property market may not be ready for REITs.

Mr Brooke said: "The jury is out as far as China is concerned. Whether they are the right vehicle for China, in a mature market where you are looking at income yield and properties, people are looking for steady income flows, but more people playing the China market are looking for capital gains and REITs do not offer that capital gain."

Convertible bonds are another option for developers. Developers benefit from low coupon rates, while investors may benefit from an upside in a company's share price, or if not, fall back on the debt component of the security.

Hong Kong-listed Country Garden, for instance, offered a 2.5 per cent coupon back in February, with yields of up to 6.25 per cent on maturity.

The downturn in the Chinese property market is also reflected in shares listed in Hong Kong. Developer shares have fallen about 70 per cent since their peak last November, reflecting poorer projected earnings.

The stock market's weakness has also forced as many as 30 developers to hold back listing plans.

[kennynah]

eh...i do have a specific question to ask about foreigners buying china land...

say, suppose, i am interested to purchase a land in beijing, what would be the most obvious regulatory constraints?

thanks in advance...

[winston]

Hi k,

1) I think Land are not for sale in China

2) Foreigners can only buy one apartment in the city where they are working.

3) I think people from HK & Taiwan are not treated as foreigners

Take care,
Winston

[kennynah]

hi w : thanks for your info...

buy apartment is not free hold i guess...right?

[winston]

Hi K,

Apartments are leasehold. I think it is for 60 years but I can check.

If a foreigner is not a resident of China, they cannot buy an apartment.

Take care,
Winston

[kennynah]

w: so the criteria is that a foreigner must be working in that city (but that's easily mitigated), and then can buy a leasehold(60 years) apartment...

wah...last time, no one wants to go china...nowadays, some people want oso not easy boss...

anways, got a bunch of fellas here and they are going to shanghai next week, apparently, to evaluate a possible venture into restaurant business... i can easily become their "worker"...hahaha... tea boy...

[winston]

w: so the criteria is that a foreigner must be working in that city (but that's easily mitigated), and then can buy a leasehold(60 years) apartment...

Hi K,

It is 50 years not 60.

Take care,
Winston

P/S Not sure that I would be buying Chinese properties at this point in time ...