Shanghai real estate in HUGE HUGE HUGE bubble

So here is another article, the one thing I found most interesting about this article were the first 2 paragraphs that read:

Chinas property prices wont plunge this year, two of Hong Kongs biggest developers with operations on the mainland said yesterday.

Chinas home prices wont drop too much, as the government cant allow prices to plunge because the real estate market is an important pillar of the economy,said Henry Cheng, managing director of New World Development Co. and son of its billionaire founder Cheng Yu-tung.



Now here we have prices of housing in China growing non STOP so much so that now real estate has become an "important pillar of the economy".....now they cant "ALLOW" prices to plunge because everyone knows that not only China would be feeling it but also the rest of the global market place. Here we have another economy relying yet again on housing to keep the economy moving, prices in this country are up greatly, in February alone they are up a huge 10%+, this is the next bubble people. I don't care how much they put down or how different they make it when buying a house, when prices skyrocket and housing becomes nearly impossible to afford for most and they announce they cannot allow prices to "plunge" or can I even say drop slightly tells me something isn't right.



Chinas Home Prices Unlikely to Plunge, Hong Kong Builders Say


By Chia-Peck Wong

March 18 (Bloomberg) -- Chinas property prices wont plunge this year, two of Hong Kongs biggest developers with operations on the mainland said yesterday, as the World Bank joined economists and hedge fund managers warning of a bubble.

Chinas home prices wont drop too much, as the government cant allow prices to plunge because the real estate market is an important pillar of the economy, said Henry Cheng, managing director of New World Development Co. and son of its billionaire founder Cheng Yu-tung.

Property prices in China rose 10.7 percent in February, the steepest gain in almost two years, even after banks raised mortgage rates. The surge -- along with a stock market rally, quickening economic growth and inflation -- led the World Bank to say China should raise interest rates to help contain the risk of a bubble, and sparked warnings of a potential crash from hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff.

China has banned banks from providing loans to developers found to be hoarding land or holding back sales of apartments to wait for higher prices, the China Securities Journal reported today, citing an unidentified person. The government has also raised banks reserve requirements twice this year, and re- imposed a tax on home sales.

The governments policies may create volatility in the market, but price drops would be limited this year as the real estate market fundamentals havent changed, Wong Siu Kong, chief executive of Kerry Properties Ltd., said yesterday. The Hong Kong-based developer controlled by the family of Malaysian billionaire Robert Kuok yesterday posted a 45 percent gain in revenue from its China property unit for 2009.

New Laws

On the same day that Chinas statistics bureau announced the February property price gain, the Ministry of Land and Resources said buyers must pay a 50 percent down payment on land acquisitions within a month of signing the contract. They must also pay a deposit, equal to 20 percent of the minimum price for the land, when taking part in auctions, the ministry said in a March 10 statement.

If too many people lose their money on real estate, it will be bad for the economy; its the same rationale in Hong Kong,New Worlds Cheng said at a briefing in Hong Kong yesterday. He didnt give a forecast for China home prices this year, and said Hong Kong residential values may rise 10 percent in 2010 as there isnt likely to be a big increase in supply.

Governments in China and Hong Kong have expressed concern about the gains in home prices. Hong Kong, a financial and trade hub of China, has pledged to supply more land and sell more than 4,000 subsidized homes after residential prices rose 5.2 percent this year, adding to 2009s 29 percent increase.

Bubble Talk

Chinas Premier Wen Jiabao warned of “latent risk to the nations banks after record new lending last year and pledged to crack down on property speculation, in a speech to the countrys annual parliamentary meeting in Beijing this month.

The nations massive monetary stimulus risks triggering large asset-price increases, a housing bubble, and bad debts from the financing of local-government projects, the Washington- based World Bank said in a quarterly report on China released in Beijing. The group raised its economic growth forecast for this year to 9.5 percent from 9 percent in January.

China is in the midst of the greatest bubble in history,James Rickards, former general counsel of hedge fund Long-Term Capital Management LP, said this week, warning it is a bubble waiting to burst.

Harvards Rogoff said Feb. 23 that a debt-fueled bubble in China may trigger a regional recession within a decade, while Chanos, founder of New York-based Kynikos Associates Ltd., predicted a slump after excessive property investments.

Earnings from China

Property earnings and prices for New Worlds projects in China will be better in its second fiscal-half from the first as they were rising from a low base, Cheng said. Some sales would also be booked in the second half ending June 30, he said.

Cheng is also chairman of New World China Land Ltd., which is 71 percent owned by New World Development. New World China, which develops properties in the mainland, said yesterday net income more than doubled to HK$940 million ($121 million) in its first half ended Dec. 31 as property sales jumped more than four times to 5.5 billion yuan ($806 million).

New World Development yesterday reported first-half net income of HK$5.35 billion, from a HK$992 million loss in the same period a year earlier. On an underlying basis which strips out revaluations, profit rose 83 percent to HK$1.86 billion. Its shares rose 1.7 percent to close at HK$15.54 yesterday, the highest since Jan. 5.

Chairman Cheng Yu-tung is Hong Kong’s fourth-richest person, according to Forbes Magazine rankings, with an estimated wealth of $6.8 billion.

Kerry, which yesterday said underlying income fell in 2009, against analysts projections of a gain, dropped 2.9 percent, the most since Feb. 18, to HK$38.85 yesterday. The chairman of the companys parent, Robert Kuok, was ranked 33rd on Forbes Magazine’s list this year, with a net worth of $14.5 billion.
 
Quote from S2007S:

Chinas Home Prices Unlikely to Plunge, Hong Kong Builders Say
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Surprise, builders hyping construction. This is like asking geithner and bernanke whether the banking system is healthy.

If countries could stop bubbles from popping, we wouldn't see them pop. The reported appreciation amounts are clearly unsustainable (to the extent that any data from china can be believed at all), as they have always been in the past everywhere else.
 
Looks like he has the same opinion as I do.

China on ‘Treadmill to Hell’ Amid Bubble, Chanos Says (Update1)
April 08, 2010, 12:17 AM EDT
More From Businessweek




By Shiyin Chen

April 8 (Bloomberg) -- China’s property market is a bubble that may burst by as early as this year, according to hedge fund manager James Chanos.

The world’s third-biggest economy may need to keep up the pace of property investment because up to 60 percent of its gross domestic product relies on construction, said Chanos. The bubble may begin to “run its course” in late-2010 or 2011, he said in an interview on “The Charlie Rose Show” that will air on PBS and Bloomberg TV.

China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”

Property prices in China rose at the fastest pace in almost two years in February even after officials this year re-imposed a tax on homes sold within five years of their purchase to curb speculation and ordered banks to set aside more funds as reserves to cool lending. The boom in China’s real estate has fueled concern that China may face a collapse seen in Dubai that has hurt the ability of some of its companies to repay debt.

Since his January prediction, Chanos, the founder of Kynikos Associates Ltd, has been joined by Gloom, Doom & Boom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China’s property market.

Chinese state and local governments are among the most leveraged to property-related borrowings and the nation will “ultimately” have to nationalize a lot of the bad loans that will arise from the end of the bubble, Chanos said.

China’s Reserves

China’s foreign currency reserves will be “one asset” that can be used to fund a cleanup of the banking system, he said. The country has accumulated a record $2.4 trillion of reserves, and $889 billion of U.S. government debt, partly a consequence of its exchange-rate policy.

Chanos was one of the first investors to foresee the 2001 collapse of Houston-based energy company Enron Corp. The investor said he is short-selling Chinese developers as well as companies supplying building-related materials to the country, without identifying any stocks.

In a short sale, investors bet on declines in securities by borrowing stock to sell on the expectation it can be purchased at a lower price before handing it back.
 
Bloomberg
China’s Rules to Curb Property ‘Madness’ Will Take Effect Now
April 16, 2010, 11:51 PM EDT
More From Businessweek

April 17 (Bloomberg) -- China’s central bank pledged to immediately implement new lending rules to cool real-estate speculation and one of its policy advisers said the market is having its “last madness.”

The central bank commented in a statement on its Web site last night. Li Daokui, a newly appointed academic adviser to the monetary policy committee, spoke in an interview broadcast by state television on April 15.

Asset-price bubbles inflated by a credit boom could derail the recovery of the world’s fastest-growing major economy, which expanded 11.9 percent in the first quarter from a year earlier. China’s cabinet, the State Council, announced higher mortgage rates and down-payment ratios for second homes on April 15 after property prices jumped by a record in March.

Investors “don’t realize how strong and resolute the political will is among top leaders to curb price gains,” Li said on Central Television. The market is having its “last madness” and speculation may dissipate in a year or 18 months on extra action by local authorities and an increased supply of low-price, so-called policy homes, Li said.

Cheung Kong (Holdings) Ltd., the Hong Kong developer controlled by billionaire Li Ka-shing, said yesterday that efforts to cool the Chinese property market are “timely.”

“You want to take action before the market gets too hot,” Justin Chiu, executive director of Cheung Kong, said in a Bloomberg Television interview. “Prices have gone up really quite a lot; people buying for their own use should do it within their means. If they invest, they need to be cautious about interest rates.”

Stocks Fall

Under the new rules, down payments for second homes must be at least 50 percent, up from 40 percent, and mortgage rates can’t be lower than 110 percent of benchmark rates, the State Council said. Banks should also raise down payment ratios and rates for third homes “by a broad margin,” it said.

The Shanghai Composite Index fell 1.1 percent yesterday on concern that measures to cool the real-estate market may hurt economic growth and companies’ profits.

“We don’t think that’s the end of the policy crackdown on the property market and some shoes have yet to drop,” said Larry Wan, deputy chief investment officer at KBC-Goldstate Fund Management Co., which oversees about $583 million. “Property accounts for a big proportion of fixed-asset investment and if the property industry is down, the whole economy will get hurt. So will related industries such as banking and resources.”

Surging Prices

Property prices in 70 major cities surged 11.7 percent in March from a year earlier, the most since records began in 2005, government data showed last week.

In an April 15 statement after the release of first-quarter numbers for gross domestic product, the State Council said that local governments have failed to control speculation. Besides limiting the risk of price bubbles, policy makers want to keep housing affordable.

The government has yet to take another step which could help to cool the property market: raising benchmark interest rates. Instead, officials are targeting a 22 percent reduction in new loans in 2010 from last year’s record of $1.4 trillion.

In an April 14 statement, the State Council said first- quarter growth was largely driven by stimulus policies and a comparison with a low level a year earlier, signaling that officials may be cautious in withdrawing stimulus.

China’s economy is showing signs of overheating and officials may face a “grim” and difficult task in holding full-year inflation to a targeted maximum of 3 percent, said Li, a professor at Tsinghua University in Beijing. He was appointed as one of three academic advisers to the People’s Bank of China last month.
 
Deja Vu.

The exact debt cycle is being repeated in China that happened in the US. Amazing how it could repeat so quickly. Now the big test will be, can a command economy do any better than a capitalist american economy. Will China come out shining, or be completely destroyed from within.
 
S2007, do you plan to short China RE or is this just a running commentary thread? Towards the end of the Chanos interview he said he's looking at developers listed in Hong Kong.


imarketnews.com
Sunday, April 18, 2010 - 22:16
China Adds Fresh Restrictions To Curb Property Prices

BEIJING (MNI) - China announced fresh restrictions on credit availability for home purchases at the weekened as the government steps up its efforts to cool surging prices and ease rising social discontent.

A statement issued by the State Council Saturday said prospective buyers will be denied a mortgage if it is for a third home or more. Buyers will also be unable to secure a mortgage if they cannot prove that they have lived and paid tax in the city where the planned purchase is located.

It said that local governments will be allowed to take "temporary measures" to control prices but, as with a statement on controlling property prices issued last Thursday, no details were given.

The government said last week that it is raising the minimum downpayment for purchases of a second home to 50% from 40% and the minimum for purchases of first homes of over 90 square meters to 30% from 20%.

The minimum floor for mortgage lending was also fixed at 1.1 times the benchmark lending rate, imposing a uniform standard on the industry nationwide.

Expectations of tightening measures have been expected against the backdrop of a sharp run-up of property prices which many analysts blame on the ultra-loose policy stance adopted in late 2008.

Average property prices rose a record 11.7% y/y in March, government data released Wednesday indicated.

Even that headline number -- which some analysts believe understates the volatility of Chinese property prices -- doesn't capture what is happening in some markets as a result of the monetary deluge unleashed by the government.

The southern resort island of Hainan has been a particular focus of critics of Beijing's loose policy stance. In Haikou, the island's capital, prices rose 64.8% y/y in March while the resort town of Sanya saw prices rise 57.5%, the government said.
 
The question is how does a bubble burst nearly as bad as it did here when families are paying 30-50% down? They don't have the ability to draw lines of credit from their houses and they have a significant interest to retain their homes and the ability to let it go at a lower price if they need to because they already have 30-50% equity. I'm not saying it isn't a bubble. I just don't see how it pops the same way as the United States did.
 
If Chanos is as well informed as I believe he is they are not homes. They are vacant apartments where there is no group earning enough to rent them at a price that supports the debt service.

I agree that the government can do a lot to delay the day of reckoning and even influence who must reckon with the loss. But it is a recipe for disaster.

Quote from bkveen3:

The question is how does a bubble burst nearly as bad as it did here when families are paying 30-50% down? They don't have the ability to draw lines of credit from their houses and they have a significant interest to retain their homes and the ability to let it go at a lower price if they need to because they already have 30-50% equity. I'm not saying it isn't a bubble. I just don't see how it pops the same way as the United States did.
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Quote from Kedwards:

A statement issued by the State Council Saturday said prospective buyers will be denied a mortgage if it is for a third home or more.

The government said last week that it is raising the minimum downpayment for purchases of a second home to 50% from 40% and the minimum for purchases of first homes of over 90 square meters to 30% from 20%.
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This is the first set of policies from the government that had an actual material impact on the real estate market in shanghai, mostly on the high end (>5mil rmb) properties...

I was talking to a friend in shanghai, also a real estate investor (much more knowledgeable than myself as it's his full time job), he said after the policy hit last week till now, many luxury condos that were under contract got pulled, because the buyer: 1) could not get mortgage approval as the banks brought the hammer down per instructions from the government 2) dont have enough down payment/reserve now, chinese are very conservative they always like to keep plenty savings in the bank 3) got scared and pulled out.

He's aware at least a dozen units personally that were under contract and didnt close. It will be very interesting to see how this unfolds in the next 1 year. It is the first time i am aware of where a government is forcefully trying to deflate its real estate prices that are on fire, backed by a healthy economy/solid buyers. If you look at the buyers, despite the uninformed opinions here, a vast majority of them are very conservative, savvy, and well qualified able to afford 30-50% down with plenty reserve. It's nothing close to the buyers that caused the real estate bubble in the us.

As said it will be interesting to see the market and the govt battle it out over time. I have been all cash for a while now, my friend sold all the luxury units and kept a bunch lowcost <1m rmb rentals for cashflow. We talked about where to put the money since real estate is no longer an option at least for the next 1-2 years, and came up blank, i guess keep it in rmb is good enough for now....
 
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