Into the Jaws of the Bear: More RE Restrictions, More Dollar Borrowing

Even though the Chinese real estate market peaked and is beginning to turn lower, Chinese cities are still piling on the buying and credit restrictions. Shenzhen, Jinan and Chongqing are the latest. In other news, Chinese borrowers are increasing their issuance of U.S. dollar bonds because of Chinese credit controls, including state borrowers.

China Daily: House sales fall, more tightening in pipeline
Following tougher house-buying rules to contain speculation, property sales in China's large cities dropped at the beginning of 2017. Analysts said house prices nationwide could drop slightly this year as more tightening measures were in the pipeline.
Here's the latest from iFeng: 多地楼市调控升级:热点区域成交大幅降温
Shenzhen is limiting the price of homes applying for a pre-sale license:
Shenzhen Municipal Planning and Land Commission recently in the "pre-sale price of commercial housing and business apartments operating rules," clearly stated that the proposed pre-sale project is the first time to apply for pre-sale, the apartment reported the average price shall not be significantly higher than the surrounding similar Units in the sales price of the sale of the project, the surrounding non-similar items in the sale of reference, you can refer to similar second-hand housing prices around.
Chongqing is strictly enforcing similar controls:
Chongqing City Land and Housing Bureau recently issued "on the strengthening of the main city commercial housing project pre-sale program management notice," demanding strict implementation of the pre-sale price declaration, the declaration of price review and price changes for the record requirements.
Jinan implement more general buying restrictions, such as limiting people from buying another home if they already own two.

Also: Capital curbs push Chinese firms to risky, costly dollar bonds
China's efforts to support its currency and cool its hot property market are encouraging more Chinese companies, including many state firms, to take on extra cost and risk by raising foreign-currency bonds in Hong Kong and other offshore locations.

Despite the yuan's nearly 7 percent slump against the dollar in 2016, Chinese companies including state-owned Bank of China (601988.SS) raised a record $111 billion in offshore dollar bonds, according to data from Dealogic, up from $88 billion in 2015.

...The list includes issuers who need dollars to pay for overseas acquisitions and deals but are unable to use their yuan after China tightened its grip on capital outflows last year to support the currency.

"It's getting increasingly difficult to move money out," said Shen Weizheng, fund manager at Ivy Capital, which invests in stocks and bonds in Hong Kong. "So for Chinese companies eager to invest overseas, the dollar bond market becomes an easier funding avenue."
The last two times the U.S. dollar peaked, it caused a collapse in emerging market asset prices and commodity prices, followed by a downturn in the U.S. In the early 1980s, Latin American debt and oil prices collapsed. Then there as the 1987 stock market crash, a real estate downturn and the Savings & Loan Crisis. In the 1990s, the Asian Crisis, oil prices down to $8 a barrel, followed by the bursting of the dotcom bubble and a real estate downturn in the United States. Using leverage to build a short-USD, long assets position amid a U.S. dollar rally is likely to end badly.

Bloomberg: Good Times Seen Coming to End for China’s Real Estate Bonds
Caijing coverage: 125亿美元债年内到期 中资房企紧急补充弹药
Steps to cool China’s property market are stoking speculation the good times are about to end for developer bonds offshore.

The hangover would be big. Yield-starved fund managers around the world have piled into the $65 billion market for dollar-denominated notes sold by Chinese builders.

The Caijing article reports rising yields:
However, according to a Hong Kong investment bankers observed that the rate of Chinese-funded housing enterprises issued US dollar debt is rising from the end of 2016 about 6%, climbing to the current 7%, some even more than 10%.

...in 2017, Chinese developers real dollar debt (including high rating and high yield) will be issued in the total amount of 18 billion US dollars, accounting for 25% of the entire Chinese-funded non-financial enterprises.

Behind the high-frequency bonds is a large number of the upcoming US dollar debt. A number of overseas issuer data statistics show that this year there will be 12.5 billion US dollars from the Housing Housing debt maturity. However, housing prices are also facing a dilemma: the Fed's rate hike will make the US dollar interest rates have a higher trend, housing prices are also tightening domestic financing.

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