China Housing Market Reaches Historic Turning Point

Chinese home prices cannot continue to rise reads the headline, a historic turning point is at hand.

iFeng: 房价难以持续高位上涨 楼市飙到“历史性拐点”?

Easy money is still fueling a rise for now, including low private market rates:
China Index Research Institute released report shows that the central bank cut interest rates to reduce the interest rate market, in June 2016, the weighted average interbank interest rate of 2.1% over last year increased 0.7 percentage points, but still a relatively low level; in June the composite interest rate of Wenzhou private lending was 17.3%, the lowest in nearly three years. While domestic long-term lending rates as low as 4.90 percent, to its lowest level in nearly 20 years.
State-owned companies may have a cost of capital close to that of short-term interbank loans:
In the first half continued loose monetary liquidity, housing prices of equity financing and debt financing channels all the way sunny. According to the China Index Research Institute statistics, the first half of 2016 a total of 34 A-share listed room rate publish additional plans, financing totaling 227.1 billion yuan, an increase of 41.9% over last year. Meanwhile, a total of 19 additional plans for the successful implementation of housing prices, fund-raising total of 68.7 billion yuan, while in the first half of 2015, but this figure is 18.5 billion yuan, compared to last year, the number and size of the issuance of the first half of this year rose sharply emerged trend.

  In addition to equity financing, debt issuance is an important channel to obtain funds. WIND IT data show that as of August 1, 2016, 816 real estate bonds, bonds total 758.812 billion yuan, in addition to the financial industry is the largest industry bonds, compared with the same period last year total 193.473 billion yuan bonds rose 292%. Among them, only the number of bonds in July only reached 125.

There are reports that last year the average cost of financing for a considerable number of state-owned developers did not exceed 5% and a number of central enterprises' financing costs may have been as low as 2% to 3%.
Easy money funneled into a narrow slice of the economy. The two paths ahead are deflation, as was seen in the A-share bubble last year, or acceleration into the broader economy.
 E-House Research Director Institute think tank Center serious leap forward that from the first half of this year, corporate bond issuance scale point of view, relatively large-scale state-owned enterprise development, and lower the coupon rate of the bonds. From this perspective, such enterprises in the territories beat the market have a natural impulse. Also these companies themselves are also under pressure SOE reform, the acquisition of real estate stocks, acquisition of real estate projects or directly involved in the process to take place, such state-owned enterprises are frequently the recent policy actions. Overall, this means that the real estate industry has entered a period of recovery and rebound, these state-owned enterprises continued good market for the future, will continue to promote such land market hot.
We have seen this before, it happened in the wake of 2008. Back then SOEs were pouring into real estate because capital was cheap and they were forced to borrow. Now capital is cheap and they are forced to reform, but loading up on land and real estate projects instead to pad their "good" assets. Already, developers are turning to buyouts and mergers to acquire assets though. Less profitable and highly leverage companies could be targets heading into next year:
To financial innovation in China, for example, Shenwan Hong source (000,166, stock it) data show that, since 2015, the number of projects the financial record acquisitions totaled 46. In May this year, CEO Wang Mengde financial record, said the financial record of more than two thirds of the land bank acquisitions, mergers and acquisitions obtained.

Goldman Sachs Gao Hua Securities research report released, expected around the fourth quarter of 2016 to the first quarter of 2017, the real estate industry leaders will be more actively involved in acquiring higher leverage or weak profitability enterprises.

One developer told reporters, with local control policy will focus more on differentiation, and the policy level to encourage further mergers and acquisitions of real estate enterprises, but also means that in the era of flour costing more than bread, joining up will be the best way to fight in the future .
Meanwhile, investors are starting to dump property following the recent run-up. Speaking of the 8.2 percent single-month price drop in Shenzhen, one reporter writes that selling is heavy as Shenzhen property holders sell locally and buy in other areas:
If you talk about the Shenzhen housing prices plummeted, far more than 8.2%, while 8.2% is not high, but in the hearts of buyers able to cause great impact on psychology in the majority of people are singing prices can not fall, it is not allowed fall under hinted it will cause a severe blow, unless he or she says it all started. So psychological expectations will change a lot in the second half, prices did not rise and not fall only truth.

According to the survey, many people in the hands of Shenzhen sell the house, then go buy the field. They generally feel that housing prices in Shenzhen is the country's highest, is difficult to have room to rise, but at present there are data to prove that there has been a high level consolidation, sign up weak. It also shows that housing prices in Shenzhen, Shenzhen investors to pessimism and risk warning.
Speaking of Beijing, the author of the piece says it has special characteristics, including a slower price rise that should moderate any corrective move:
Beijing is unique, and Beijing price increase was not as serious as in Shenzhen, especially when the first-tier cities housing prices and have introduced regulatory policy, Beijing is very calm, showing house prices still rising. Then, when the correction housing prices in Shenzhen, Beijing should still be very calm. But overall, the first half of house prices are at the highest position, if not the second half of the introduction of active policies, prices there will be a pullback.

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