Reform Can Wait: 4 Trillion Stimulus All Over Again as SOEs Pour into Land Market

The flurry of SOE land kings in the past week alone has Chinese media questioning whether this is the final madness phase of this bull market. Real estate insiders compare this market to the 4 trillion stimulus from 2008 and concern is spreading because these are the conditions that led to economic trouble in the past 5 years. As the 2009 stimulus wore off, companies couldn't earn money in their core businesses, so they moved into real estate speculation. SOEs were opening real estate divisions and some eventually were acting as loan sharks. From 2012: Sinopec Sichuan sales office: King of the loan sharks? Usury scandal may be the tip of the iceberg

Many Chinese firms from all sectors of the economy are involved in the real estate industry, although this has cooled along with the property market. Many companies developed property or opened separate real estate development divisions, while others bought property for investment. State-owned companies also joined the speculative fervor and have a natural advantage thanks to favorable credit terms at state-owned banks. The simplest transaction would have been to loan capital to developers at higher interest rates.

Sinopec Sichuan is alleged to have taken this strategy to the level of loan shark....the firm is accused of making high interest rate loans to a private developer in order to force bankruptcy and take control of the firm.

We haven't reached this stage yet, but who knows. There's also likely to be some new forms of misuse of loan funds. Before it was rehypothecated copper funneled into real estate, or steel trading loans funneled into loan sharking to developers, this time...?

As noted in yesterday's post, SOEs and Financial Companies Push Private Developers Out With Insane Land Grab, there's also already talk of collusion between SOEs/developers and local governments. They conspired to raise land prices before and with both sides in need of some good news, are they at it again? This recalls a post from last week on the recurrence of supposedly solved credit problems at the local level: China's Default Bombs Haven't Been Defused

Everyone can come to their own conclusion as to whether China has made progress on reform, as to whether the anti-corruption campaign has greatly reduced the incidence of corruption and disregard for central directives, or if history is repeating. A large inflation of money and credit is reason enough for a surge in land prices so one doesn't need to imagine more. Yet if old patterns persist, there's far more trouble brewing than meets the eye.

iFeng: 全国“地王周”：房企各地大肆抢地 正上演最后的疯狂？ (The week of the land king, the final stage of madness?)

Starting Tuesday, the land king tide began to sweep the country, first in Hefei, and then in Shanghai, Zhengzhou, followed by Shenzhen, Beijing and Xiamen, Hangzhou, a wide range of fast, speed, snatch all the intense raspberry, which people have a "desire to make God destroy, they first make mad" feeling.

The reason they acted so, in addition to not being short of money, was to bet on rising housing price expectations. The first five months of this market really gave them confidence, but in the cities and crazy at the same time double the property market, a strong second-tier cities limit procurement policies have begun brewing, first-tier cities have been overweight, which is bound to bring some changes in the market, under varying conditions of uncertainty, which the land king is like a "a dammed lake", full to the brim and always fraught with danger.

Land Kings Everywhere
May 31, Tuesday, Hefei launched 13, in order to "shock and awe" of housing prices, Hefei bureau not only dispersed within seven classrooms, the Land Commission, the bureau responsible people to the site to watch the earth shoot will live. Even shielding devices are equipped with communications within seven classrooms.

For housing prices, this is a special "entrance", but they are not afraid. "Swords", the C & D Group 22.5 million yuan / mu prices speak Baohe District S1510 block, floor price of 18,750 yuan / square meters, the premium rate of 350%, Hefei new floor price to the king was born .

Immediately after, June 1, at 24 housing prices experienced over 200 rounds of bidding, and finally to 5.805 billion yuan Cinda won Baoshan District Baoshan Gu Village Metro 10-03,10-05 A unit block, the floor price of 36962 yuan / square meter, the premium rate of 303%, becoming the Baoshan monovalent new "king." Its birth the same day, as well as Henan Zhengzhou Zhengdong New District new "king", the floor price of more than 24,000 yuan / square meter.

June 2, Shenzhen, Beijing and have appeared in the area of ​​new unit to the king. First of all, the morning, China Electric Power Construction teamed up to 8.29 billion yuan in Guangzhou Fangrong Shenzhen winning the upper hand first pilot commercial and residential land A816-0060 block, floor price of about 56,800 yuan / square meter, Longhua Xindi become king; Then, in the afternoon floor price of Beijing Haidian, Shunyi, Yanqing three plots and have reached 30,200 / square meter, 44,600 / square meter and 31,000 yuan / square meter, setting a floor price of each region.

In addition, Xiamen, Hangzhou is also a war of June 3 divergent natural. In the morning, to 2.222 billion yuan Vanke won Xiang'an X2016P02 land, equivalent to the floor price of 22,300 yuan / square meter, the premium rate of 242%, Xiang'an District to become the new unit to the king. In the afternoon, the first of the Commonwealth to 6.41 billion yuan won Jinmao District of Hangzhou City home, the premium rate of 93%, the floor price of 33,106 yuan / square meter, refresh Gongshu floor price.

The king of the fire, all over the country north and south. In this regard, Centaline Dawei analysis, principal analyst said: "Lord frequently, asset funds subtidal panic, especially second-tier cities, the king has become a frequent trend."

Yi Ju Yan Yuejin think tanks, research director for the Phoenix real estate, said: "The current housing prices get to basically state-owned enterprises or the central nature of this funding and their more recent available relationship Secondly, these cities, especially line. urban land values ​​continue to rise, so compared to other areas, they are more willing to invest in real estate. "

Centaline Property Research Department statistics show: 2016 ended May 31, the national land market to the king frequent, according to which the total price calculation, more than 1.5 billion total has 105 high total price of land, second-tier cities become the absolute main, the total price land king on 105 plots, a total of only 27 first-tier cities, second-tier cities accounted for 74%. Nanjing alone saw 16 land kings.

The direct consequence of this is bound to increase the surrounding housing prices.

iFeng: 危险的央企地王：重演4万亿后资金集中流入房地产老路？ (Dangerous SOE land kings, a repeat of the 2008 stimulus?)

Insiders told reporters, recently, the SOEs frequently grabbed land in the hottest cities in China, become "the land king", similar to what happened after the 2009 4 trillion stimulus, all over China SOEs manufactured "land kings," easy money has again concentrated and flowed into the real estate industry, banks are keen to lend low cost and ample credit to state-owned enterprises and large developers, which induces them to spare no expense in their land grab.

The problem is that this year, there was an urgent need to reduce inventory in the real estate market, but "land king" and other factors continued to stimulate, and not lacking money the debt levels of developers have hit record highs; most important to note is that macro economy is still hitting new lows, the real estate market is still roaring ahead, dangerous economic model not only has not changed, but has moved farther and farther away.

The weak economy, roaring real estate market and access to cheap credit is leading SOEs into real estate:

"Ample liquidity, bank money no place to go, the real economy less investment demand, but also a high rate of bad debt, banks are reluctant to lend to industry, a lot of industry is still in excess of production capacity to the stage, only to real estate and capital flows; and loans to the central enterprises, state-owned enterprises, the great enterprises, listed room rate is the safest. "a state-owned mortgage banking company account manager told the" China Times "reporter, this time with 4 trillion in 2009 is similar to the low cost of financing the central enterprises everywhere get to.

Developers loaded up on debt in 2015 amid the corporate bond bubble:

According to Wind Information, in 2015 the listed real estate corporate bonds were about 300 billion yuan, an increase of 18 times from the year prior. Securities Association of China has other statistics showing that last year the real estate company bonds totaled 428.2 billion yuan, accounting for 42.87 percent of the corporate bonds issued in 2015

Industry insiders believe that developer borrowing is easy and low cost, will naturally go to market and pay high prices for the land grab. Shenzhen Overseas Chinese Town recently issued 3.5 billion yuan of corporate bonds, interest rate as low as 2.98%.

The article concludes:

Playing the stock market with high leverage led to a crash, and the property market is now playing with leverage coupled with the hidden risk of high debt levels, the economy has not successfully recovered, can it withstand any trouble?

Related: The Economic Observer considers the logic of SOE land buys in 央企的地王逻辑.