SOEs and Financial Companies Push Private Developers Out With Insane Land Grab

The bloom is off the rose. Ordinary Chinese are not happy about the situation in the real estate market. Home prices are soaring, but media are beginning to speak of a conspiracy between governments and developers/land buyers aimed at driving up land and home prices. Securities brokers are also funneling money into housing, driving prices skyward as developers look on in wonder. One buyer in Zhengzhou paid huge premiums for land in a ghost city that to this day is sitting empty. If financial companies getting into real estate wasn't enough, SOEs not in the real estate business were ordered out of the industry six years ago, but some firms have lingered and are now joining real estate SOEs in the land rush.

iFeng: 地王让“鬼城”见鬼去了 开发商直言：看不懂了

...there is a new Zhengdong New District is located in Zhengzhou, Henan, "king" floor price of more than 24,000 yuan / square meter.

Since 2014, public opinion has been constantly concerned about Chung Dong New Area "ghost town", it is still like a nightmare to this day, but the current hot property market in first- and second-tier cities, so that the so-called "China's largest ghost town" had no choice but to go to hell.

AS the headline says, this ghost city can go to Hell.

Chinese think there's a conspiracy between developers and local governments to drive up home prices:

Recently, the media exposed behind a lot of "land kings" are the local government, real estate companies, and financial capital in a conspiracy intentionally trading land, stoking the fire under home prices.

The article gives an example of Hefei, where on May 30 some land sold for an average price of 18,500 per sqm, exceeding the price of some high-end homes.

Financial capital sneaks into Real Estate

Recently, the "Daily Economic News" reporter had specifically reported that 24 listed brokerage throw huge amounts of money to purchase real estate, housing and even individual brokers to borrow money, including to build a typical city landmark level of urban construction, to buy land for housing repair exhilaration .

It's referring to this story from early in May: 24家上市券商掷巨资 买地修房不亦乐乎, which discussed how listed securities brokers were investing heavily in real estate and land. The reasoning was they needed someplace secure to invest:

This news came out, the outside world in an uproar. Rongteng Hong said that the recent stock market more bearish, indicating that the real economy is not satisfactory, the financial capital needed to invest more secure place.

and because there's no other way to secure a return:

'King' behind, is a kind of financial behavior, driven by the capital." Shen Wei said entity downturn, M2 Ultra hair, excessive liquidity needs to find a way to invest in land and other assets in order to guarantee a return, which is At present, a helpless practice.

There was also a story out today about securities firms investing in land: Dumping the Yuan: Financial Industry Rushes Into Land Market

So there are developers, and outside financial investors who want to see land and home prices rise. How about government?

Bloomberg: China’s Cash-Strapped Local Governments Look to Boost Funds

Meantime, the local economies hardest hit by revenue shortfalls are falling back on land sales to plug the gap, potentially worsening their long-term housing problems by adding to excess supply. The northeast rust-belt provinces of Heilongjiang, Liaoning and Jilin are most reliant on land sales, a Bloomberg provincial risk tracker shows.

The People's Daily isn't happy. It says the rise in land prices is irrational: 人民日报：土地拍卖市场非理性 该降降温了

The article starts with one of the latest examples of irrational land pricing:

June 1, Cinda Group looks to total 5.805 billion yuan Shanghai Gu Village, Baoshan District, one block. It is estimated that the project future guaranteed price will be more than 70,000 yuan / square meter, 2 times the current average selling price in the region.

It goes on:

Irrational land auction market risk should be of concern

Irrational land auction market, so many people in the industry started to worry. CRIC researcher Ma Qian and other industry experts believe that the current performance of the land market overheated, the main reason some of industrial capital and bank credit funds pouring into real estate, "find the money."

It is noteworthy that the recent shoot all "sites", which are higher than the surrounding floor price in the sale of real estate prices. Reporters at the Shanghai Si Jing "means" surrounding "ITC Smiling" found that the project due to the adjacent floor price of nearly 40,000 yuan per square meter of the new division, "King", far higher than the average selling price of an item 28000 yuan. Nanjing Price "means" surrounding the sale of the sale price between 30000-35000 yuan, far less than the unit price "means" floor price of 45,000 yuan. In Suzhou , Hefei and other cities, "the price of flour more expensive than the price of bread" has also been common.

See: Flour More Expensive Than Bread: Second Tier Land Prices Soar 180 pc
Back the the PD:

Land price bubble is not as "The Emperor's New Clothes" with no one bursting it. Centaline Dawei, chief analyst, said first-tier cities land space already inadequate housing prices began "hunting" second-tier cities, local governments should be highly concerned about the high land price bubble risks pushing high leverage and high prices bring "all 'king' are there may be a greater loss in the past few years, the country's 'king' are now basically at a loss or selling at no profit, in future if house prices into the adjustment period, developers are likely to face a huge sales problems. "

To prevent housing estate bubble , there are local governments resorted to limit land policy. Suzhou May 18 announcement of the multi-block transfer of land to set the highest offer more than the highest offer to terminate the transfer. Nanjing May 27 announced the implementation of the land transfer price-cap approach, in the hot spot areas in residential land transfer, land transfer set by the government price ceiling.

Finally, the Coup de grâce: SOEs are still in the real estate business, 6 years after being ordered out. They're joining the securities firms and state-owned developers piling into an already overheated market.

iFeng: “退房令”发出六年 央企为何还在楼市里？

Central enterprises concentration "sweeping", pushing up out of the land market in recent hot market for high tide. Centaline Property Research Department statistics show that as of May 23, the country's highest trading price during the year 50 land, of which there are 27 state-owned land is obtained, turnover reached 109.49 billion yuan. According to "Japanese Securities News" reported that the central enterprises listed companies together, won more than eighty percent of land kings.

However, as early as 2010, the SAC asked the 78 non-real estate SOEs to exit the real estate business, leaving only the 16 main firms, later increasing this list to 21.

More than six years later, not only are the real estate SOEs involved in crazy "land king war," those non-real estate SOEs ordered out also did not completely get out of the real estate market.

...2013 Chinese State Shipbuilding Corporation's Rui Zhou Real Estate Development Co., Ltd., is also implementing "Blue Ocean Strategy"; China Nuclear Engineering and Construction Group's core real estate development company, is located in the downtown area of Tianjin. " China nuclear construction review project of peace to the king, "next year is also planned for 2016 opening.

As before, SOEs can't stay away because their cost of capital is about 3 percent less than for private developers:

"Central enterprises lower financing costs, interest rates are often lower than other housing prices 3 percent." E-House Research Director Yan Yuejin Institute think tank Center for Southern Weekend reporter that the central enterprises "to take" would be emboldened enough.

...A market economy environment, around the "SOEs can enter the real estate market" issue, was also triggered a social debate. Economist Ma Guangyuan participate in the discussion of the author believes that the SOEs rely on a unique position, the dominant resources in the credit policy, not appropriate to remain in the competitive real estate market.

Recall that local governments rely on land finance and back in 2014 a headline here was: Systematic Fraud and Corruption in Land Sales Threatens Economy. Is there any chance the governments are back at the rigged land sale game?

Chinese officials are playing a furious game of economic policy ping pong. They step on the gas, then brake, then gas, then brake. They have to resort to regulatory intervention to keep capital from flowing non-stop into a bubble, but it redirects into an entirely new bubble. The real economy is deteriorating as more attention is drawn into artificially created activity. The pain seen in prior years will only be amplified in the next down cycle, with risk of currency devaluation or high/hyperinflation growing.