Soaring Land Sales Will Lead To A Great Depression in Real Estate

The past few weeks have seen articles on soaring land prices in first-tier cities, with Shanghai halting land auctions. Rising land prices are an issue of cost, with rising costs leading to more luxury apartment construction as a matter of necessity.

Now one article sees a depression on the other side of this land price rally. This article was a top headline in the real estate section of iFeng. The term "land king" in the article refers to developers who set new records for expensive land purchases.

iFeng: 若下半年地王现象持续 楼市陷入大萧条调整期
From the land market performance this year, if the land market "king" phenomenon in the second half of this year continued to frequent, which means that the property market will fall into a Great Depression period of adjustment.
Central bank rate cuts have had an impact, but its leading to soaring land prices and stabilization of real estate.
In fact, since entering in 2015, the central bank already has three RRR, interest rates four times, and almost every time the central bank cut interest rates drop quasi have on the property market had a significant positive stimulus.

Zhang Hongwei author consulted with the policy research center director believes that the property market "bailout" policy more frequently, but described the current property market situation more grim, the future of the property market is facing more problems, the future still hides more market risk.

Zhang Hongwei pointed out that, after the central bank to "double down", the property market will demand a large number of overdrafts, the property market into the Great Depression after the madness in the second half.
He sees the correction coming in the first half of 2016:
After the central bank "double down", round of market volume and price go up to last until the end of the fourth quarter of this year, meaning that the central bank "double down", the property market will demand a lot of overdrafts, the property market in the second half into madness after the Great Depression, From the perspective of time, the early 2016 began a new round of real estate market correction is likely to be coming.
He sees developers as being caught up in a land buying frenzy that will leave them short on capital when the fervor runs out and the correction follows.
By then, if the company did not do "rainy day" in the second half, then housing prices is likely to be caught in the situation of passive push plate, enterprise funds face will therefore encounter problems.

In addition, this year, north of Guangzhou-Shenzhen-tier cities, Hefei, Nanjing, Wuhan and other cities, "land kings" are frequent.

Centaline statistics since 2015 that the country's 20 largest first- and second-tier city benchmark for housing prices land purchases by area accounted for 65.9% of nationwide land sales, the full return of key cities. From the transaction data, the benchmark for housing prices in first-tier cities accounted for up to 12.4% of nationwide area under construction. These two indicators are in the historical record.

Centaline Dawei, chief analyst, said after the recent market heating up, first- and second-tier supply of land, housing prices in active fighting. "Land king" is still frequent, reflecting the developers view first- and second-tier market more emotionally.

Zhang Hongwei expected, Beijing, Shanghai and other places frequently occurring king project will usually affect nearby property and even the whole city.
History shows that the "land king" phenomena often emerges right before the real estate market turns down, sort of like the Skyscraper Index.
Recalling the past few years, "land king history." The land kings of fourth quarter 2007 and first half of 2008, became frustrated sellers in the fourth quarter of 2008 and the first half of 2009.

The kings of the fourth quarter of 2009 and first half of 2010, felt a very cool wind in the second half of 2011 and the first half of 2012. The land kinds in the second half of 2013 second half were miserable in 2014.
Ultimately, the theory rests on the idea that the housing recovery is in first-tier cities, but demand there is all but sated:
Consultation with the policy research results show that around 2010, there were already 1.0 homes for every urban Chinese household, in accordance with international standards, the average urban households reached 1.0, which means the Chinese real estate market supply and demand has been basically balanced, the property market began to enter the second half, the future market incremental housing growth will decrease.

Since the market demand has largely been met, the improvement of the property market fundamentals this year due to several rounds of "rescue" policy is unsustainable.
Chinese housing supply remains elevated:
Today, per capita housing area has no any one emerging market countries is higher than in developed countries. China is a rare exception, in 2012, the per capita housing area in China has exceeded the China Taiwan and South Korea.

In other words, in the residential housing market, China has no need to catch up with the so-called head-on. However, the Chinese housing inventory problem worse than in 2008 or 2012.
The key is income growth. If wages rise fast enough, they will support prices:
Theoretically, if the Chinese increase the per capita housing area, we can continue to maintain the real estate bubble.
There's not a lot of reason to be optimistic though, because once the real estate bubble bursts, its share of GDP collapses and takes the whole economy with it:
But in fact, in view of China has realized the huge debt of local governments, developers funding chain issues, historical path of other countries and is committed to making China's economy toward consumption-led development efforts in the direction taken by the above hypothesis not a reality operability.

In 2013, the proportion of residential housing in GDP has exceeded the overwhelming majority of countries (hereinafter, this proportion continue to improve). After 2005 or 2006 years ago, the proportion of Spain's higher, but the proportion of residential housing investment spending in GDP fell from 12 percent to 4 percent, well below the 6% level of the mid-1990s.

This data can come to the point: When the real estate bubble burst, the market activity will be greatly reduced to the level before equalization.

One example is the recent US housing sales data, after six years of economic recovery, the US home sales equivalent to only half the level in 2002.

Finally, the development of Asia, both the Republic of Korea or Japan, its share in GDP in real estate never achieve this high level of China.
And there's all that bad real estate investment data:
The latest statistics show that the first three quarters, the national real estate market, investment growth continued to drop, new housing construction area and completion of the area have come down, driven by continued accommodative policies, continued modest growth in real estate sales, inventory declined, the property market recovery trend evident. But by the end of the decline in demand and economic situation and other factors, inventory pressure is still evident.

Currently, real estate stocks have been going to the critical period. Recently, Chongqing issued "Chongqing Municipal People's Government Office to further promote the stable development of the real estate market notice" to appropriate mitigation gradual slowdown in real estate investment, and accelerate to the inventory.

"Notice" to encourage the rational allocation of credit resources of financial institutions and improve the real estate development loans and individual housing mortgage loans. Financial difficulties of real estate projects under construction, not simply pumping loans, stop lending and mortgage pressure. Households for the first time to buy ordinary housing commercial individual housing loans, the minimum down payment ratio to 25%. Housing provident fund loans unified minimum down payment ratio adjusted to 20%.

It is worth mentioning that, just five days ago, Zhongshan, Guangzhou enacted a new policy points home, to purchase ordinary housing within the city, home points from 100 points to 150 points, which is also being viewed as a disguised form of bailout.
I missed that bailout. An article discussing it is here: 楼市库存压顶 多地救市政策密集出台加快去化. Some cities have point systems to qualify for subsidies or preferential treatment, such as for business owners or skilled workers, so now buying a house gives you points. There have been several local rescue efforts recently:
According to CSC Research and Development Department's latest report shows that since 2014 to date, local release bailout policies over 27, only in September this year, there are at least six local release bailout New Deal.

September 5, Liaoning Province issued "on efforts to promote real estate sales," which require municipalities to basic commodity housing stock of the situation to carry out thorough investigations, combined with the region's affordable housing projects the annual plan and the city inhabitable houses demolition plan the development of real estate to the inventory of the work program.

September 11, Shenyang publish Deal said that between May 6, 2015 until May 2016 5 day period, residents buy Shenyang ordinary commodity housing, apply for a record contract and pay the deed tax, which paid more than 1% of the part of the deed municipal and district levels, the financial rewards in the form of subsidies.

September 28, Jiaozuo said, had "Jiaozuo Municipal People's Government on the promotion of Jiaozuo City, sustained and healthy development of the real estate market" in the deed tax to pay for individual buyers enjoy 100% subsidy policy, will be postponed for three months.

September 29, the Guangdong Department of Finance announced that the members of their families to buyers who purchase records check, qualifying can enjoy the reduced rate of 1% or 1.5% deed tax preferential policies.

On the 30th, it announced in Inner Mongolia between August 1, 2015 to 30th June 2016, to the city center in Chifeng City (Hongshan, Songshan, the new city) Buy residential district building floor area ratio above 1.0, the building area 144 square meters (including 144 m2) the following new ordinary commodity housing, according to the houses they purchase amount actually paid 50% of the deed to give financial subsidies.

In this regard, E-House Research Director Institute think tank Center Yan Yuejin view, the main reason for the local market is still frequently save enormous pressure on the stock.
After some discussion of why Chinese are buying increasing amounts of U.S. real estate, the article concludes:
Fully visible, dependent on the property market in the current economic situation is more serious, China's property market situation more grim future, the future will hide more market risk.

No comments:

Post a Comment