Real Estate Depression Starts A Chain Reaction; Steel, Cement, Glass and Electricity All Slowing

A local bank official in Zhejiang says the real estate depression leads to a chain reaction and sooner or later the government will intervene. Every industry is feeling the effect and not just those who sell directly to developers, such as steel, glass and cement producers. Many companies borrowed money to fund real estate development as well. A Shenyin Wanguo analyst estimates that if real estate investment growth falls to 14% this year and there is no government intervention, GDP growth will slow to 6.6%, almost a full point below government targets.

Real estate investment slowed to 16.7% yoy growth in the first four months of 2014, down 4.7 percentage points from 2013, and more than the 3.4 percentage point decline in growth for all of 2013: the slowdown is accelerating. Real estate sales fell 6.9% yoy in the first four months of the year, land purchases fell 7.9% and new area under construction fell by 22.1%.

Cement growth is only 4.3% yoy through April and prices have fallen for 4 consecutive weeks. One firm, Sunan Cement, expects to shut production for 10 days each month starting in June and July for fear that there will be weak demand.

Steel prices have also fallen for four consecutive weeks; glass demand turned negative in March; electricity demand is slowing.

From this article and others like it's clear that many industries expect government intervention. Home buyers are cautious. Nearly everyone is watching and waiting to see what the action the central government takes. If the government intervenes, the slowdown may bottom out or the bubbles may reinflate. If the government does not intervene (or doesn't do enough), the market will tumble as those waiting decide to take action. Right now is the calm before the storm.

楼市低迷引发经济连锁反应 地方官员称迟早要救市
Real estate slump has triggered a chain reaction.

Industry as a whole industrial chain are affected, from cement, steel, glass, to the appliance industry, even companies in other industries are also affected.

Zhejiang anonymity of the local commercial banks, the official told the 21st Century Business Herald reporter, local housing prices decline, housing slow-moving, some manufacturing companies are also affected. All along, the manufacturing industry less profitable, but these companies and can get a loan from the bank properly. Excess funds are not invested to expand production, but into the real estate industry, housing prices entrusted to the borrower, or the development of a direct equity participation.

SW analysts Mengxiang Juan said that if the decline in real estate development and investment, will directly affect GDP growth. SW research report further pointed out that, with the input-output table for static calculations, if the 2014 real estate investment growth rate down to 14% in the intervention policy of zero, while others only consider the impact of the industry under the assumption that the real estate market, 2014 GDP growth will fall sharply to 6.6%.

Years of inertia lead to economic "to the real estate of" never easy, some local officials that "bailout" is a matter of time.

Industrial chain tremor

According to the National Bureau of Statistics data show that real estate development and investment growth is slowing down, the first four months grew by 16.4%, 4.7 percentage points lower than the same period last year, lower than last year's 3.4 percent. As a leading indicator of investment in real estate development, real estate sales area four months ago fell 6.9 percent, the land acquisition area fell 7.9 percent, new housing construction area fell 22.1%.

And the real estate industry is closely related to the cement industry, the price has dropped for four consecutive weeks. CITIC [ Introduction News ] Zenghao analyst observed in 2014 January-April, the national cement production totaled 672 million tons, an increase of only 4.3%, the highest since 2009 cement demand growth in cumulative year lows.

April cement production growth continued to fall compared with the first quarter, on the one hand because of the rain the weather in April compared with March frequently affect shipments. On the one hand is the weak real estate investment for infrastructure projects currently cement companies can still be shipped, but the cement mixing station generally reflect the financial strain, poor demand. It is understood that, in order to suppress the price of cement into the off-season decline, Sunan cement business plan 6-7 months, 10 days a month and then cut, cut about 30%.

Deal with the off-season, discontinued almost cement conventional means. But CITIC Securities believes, from sales, land acquisition and the newly opened area of ​​growth data of the pilot effect, the presence of the risk of subsequent stall real estate investment, will likely continue to weigh on demand for cement in the second half.

Not just cement companies, changes in the real estate boom has a great influence on the downstream demand for a variety of industries. Including the impact of the upstream iron and steel, nonferrous metals, machinery, coal, chemicals and other needs, but also for the downstream postal delivery warehousing, wholesale and retail, finance and other industries also have an impact.

GF Securities noted that steel prices have declined for four consecutive weeks, has hit a new low in nearly five years. Another generation capacity in early May just 4.3% year on year growth, compared to 4.4% in the whole month of further declines in April. According to Changjiang Securities pointed out that glass is also affected, since the beginning of 2014 compared to flat glass demand growth fell significantly last year, March is the emergence of negative growth, with the further expansion of the real estate sales pressure, the future demand concerns also exist.

Real estate can not let down?

Xing Futures report published not without pessimistically said that for now, the real estate market seems to have been a turning point, even though signs of loosening policy part of the city was also unable to change the status of the sales of light. Investment and speculation over the past few years, buyers have overdrawn prospects of real estate, unless the rigid demand for self-occupation, on the whole, speculative buyers have been difficult to find the next disk access.

SW also expressed a similar view, the current situation is not optimistic about the real estate market, whether it is real estate sales, real estate investment, new construction and land transactions are significant decline, coupled with the current tight credit policy, the real estate market will enter a big adjustment, and led to a sharp decline in China's economy growing strongly and even fears of collapse.

Since many real estate industry chain, SW considered the most comprehensive calculation method is calculated by input-output tables. According to the 2007 input-output table to calculate the actual economic performance and adjust the results as follows: 1% change in real estate investment, will result in total output and GDP based on the changes in the original 0.22% respectively. SW according to forecasts, in 2014 the real estate development and investment is expected to fall to 14%, which may lead to GDP growth in 2014 fell sharply to 6.6%

Measured data or gaps with the actual situation, but no doubt is dependent on the extent of the real economy, real estate, and not with the economic structural adjustment and transition, and significantly reduced. Old inertia is still difficult to reverse.

21st Century Business Herald reporter learned that fieldwork in Zhejiang, in order to guard against financial risks, local banks are no longer lending to real estate companies, the local government debt is high enough platform to keep vigilance. But the local financial system believe that the government does not want the property to go wrong, there is a lot of money in the real estate precipitation, once stagnant, even unfinished, the greater the risk incurred. However, no relaxation in policy from the central level, and the background of sluggish real economy, only struggling.

Since April, more than the city of Nanning, Foshan and other buyers have came untied "restriction" policy. As of May 16, has reported " restriction order "to relax the city up to 10 or more.

International investment bank Barclays Capital chief economist Jian Chang analysis, unless economic growth, employment and financial risks close to the center of tolerance "minimum line", the central government will not take an active easing.

Barclays noted that two signals: President Xi Jinping said on May 10, China's economic growth should adapt to new norms and keep a cool head in the course of the economic slowdown. And when the possibility of RMB deposit reserve rate cut was asked, the Chinese central bank governor Zhou Xiaochuan also said in the same day, China will not "implement large-scale stimulus and easy," and said the government would need to be more Multiple observational data.

Barclays believes that the central bank is closely monitoring the global economic recovery, and if in the second half of 2012 is still the case, you should reduce the pressure on large-scale easing. It is probably waiting for infrastructure investment and construction of affordable housing in the coming months to offset sluggish personal real estate investments that may arise.

Jian Chang predicted that more and more local governments will release more property-related policies to promote local sales growth. The central government will tolerate some further amendments and the "bad news" from the real estate market. At the same time as long as the local government to adapt to a broad reform agenda, they will be given more discretion to implement differentiated housing policy. The Central Government has implemented a supportive policy and institutional reforms in order to compensate for adverse economic status quo, and sustain economic growth.

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