Third and Fourth-Tier Cities Doomed As PSL Goes Away, Deleveraging Will Not End

"There is no support for property prices in third- and fourth-tier cities."

This is not an article I found through searching (as was the case with some of the recent default articles), but the top story in the finance section at iFeng. It's also a rather pessimistic article on the end of CDB lending for shantytown renovations (broken windows policy). Given Chinese control over the media, I wonder if this is a plea for more liquidity and government support, or if it is officials letting everyone know: this time, deleveraging is serious. Clearly, the author of this piece thinks this policy change is a way, way bigger deal than foreign media, which have barely covered it thus far.

Note: monetization in the Google translate refers to monetary resettlement. In some cases people were moved from a home to another existing home. In other cases they were given money to buy a home. The latter had a bigger impact on home prices and the housing market.

iFeng: 三四线楼市再无未来
The general path is this: The Central Bank gives the money to the National Development Bank and the Agricultural Development Bank through the PSL, and the local government transfers the money to the residents of the shanty-improved district, in return for land conversion. The shed change residents did not have a place to live, ran to buy commercial housing, the developer's inventory decreased, and then took the house selling money to shoot the land, the local government got the land transfer money also went out of the country to open the bank and the Agricultural Development Bank loan, forming a closed loop.

This cycle is like a super engine. Even if it is installed on a Wuling vehicle, it can easily bend over the GTR on the Tyumen Mountain. In the three or four-wire fixed assets, there is no depreciation due to the passage of time. Instead, youthful vitality and house prices have been rising. Those bricks in the empty city have changed from “Mrs. Cow” to “Sweeties.” "" The scene of the magical reality is once again staged. No one buys three or four thousand, and seventeen to ten thousand cannot buy it.
The economy is losing this super charger growth engine that has been boosting GDP.
In the past few years, the global economy as a whole was still in the fog of the economic crisis in 2008, and the low-cost advantage was also slowly disappearing. Foreign demand was actually far from satisfactory. As for investment, it is real estate investment. In the past few years, shed change is the core of real estate. In summary, the shed change is the thickest leg that supports the Chinese economy in the past three years.
The top left box is manufacturing --> exports then down to the economy. The bottom is the shantytown renovation --> investment and the over to the economy.
The monetization of the shed change is the thigh that supports the housing prices in the third and fourth tiers.

According to empirical data, 90% of the shed change is monetized in third and fourth tier cities, which is also the worst in excess inventory. According to the data of the Central Middle School, the 100 urban shed reforms in 2018 are mainly concentrated in inland areas, such as Shandong in the North China Region, the Shanghai-Nanjing-centered periphery in the East China Region and Anhui, and the Central and Western Regions in Henan, and the middle reaches of the Yangtze River in Hubei Province. , Jiangxi, Hunan, Chengdu-Chongqing urban agglomerations in Sichuan and Guizhou in the third or fourth line, and even five-tier cities.

Before 2015, the monetized resettlement housing sheds accounted for 2%-3% of residential sales in the current year. After 2015, the monetization ratio of shed jumps directly from less than 10% to 30%. Monetary resettlement houses accounted for residential sales in the current year. About 14%, the proportion of monetized resettlement increased to 48.5% in 2016, accounting for 18% of the residential sales in the year.

The year-on-year sales growth of commercial residential housing in 2017 was 5.27%, with a total of 1.448 billion square meters of new real estate residential sales. It is expected that the monetization rate of sheds will reach 60%. Calculated at 90 square meters per floor, the monetization of sheds will contribute approximately. 280 million square meters, which accounted for 22.6% of new residential sales in 17 years, more than one-fifth of the new houses sold last year were consumed by monetization.
A broken windows policy resulted in a debt build-up on local government balance sheets as government funds poured into the market to buy commercially developed properties.
According to related persons pointed out in the 21st Century Economic News interview, the shed change loan is generally a three-year period. Since 2017, many projects have required the government to repay the principal. According to the existing regulations, the local government's shed financing does not belong to the government's first, second and third classes of debt, it does not belong to the category of local debt, but belongs to other categories. It may be that the relevant departments, after investigation, regard the local government's shed reform project financing as implicit debt and need to control its total amount.

So what is the impact of this shed change?

Now that Americans are starting to sharpen their knife, the export situation is more severe than before. They can only hold the shed to change the thigh. In the next three years, 15 million units should be completed, but they cannot be over-monetized and resettled. Therefore, only physical resettlement or real estate investment will be formed. However, the resettlement process does not involve market transactions and will not result in the demand for commercial housing. The thighs of the monetized resettlement held by the third- and fourth-line prices are gradually becoming thinner. However, there is no support for property prices in the third and fourth tiers. Developers' incentives to use the land will weaken, and there will be pressure for the local government to transfer funds to repay the sheds and change debts. Therefore, this transitional phase will be the key.

In the past, the deleveraging was always come and go. After the shed had been changed to the inventory transfer leverage, there was basically no space for maneuver. Now the theme of this era is to persist in deleveraging, first to reluctantly contract, to ensure that there are no big problems inside, and then a protracted war. The revoking of PSL approval is also within this framework.

The shed change this bring their own people's livelihood attributes, the old man took this honest person to catch the ride of the times, and those long-sleeved dances want to hitchhiker, frying three or four lines of housing prices cut a leeks, put themselves in the masses of the sea of ​​people That's the opposite of this era.

The times are the background of our destiny. Believe, fate leads; unbelieving, fate drags away.

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