2018-08-13

Land Market Frozen, Local Govts Have One Mission: Control Home Prices

Nobody can jawbone like the Chinese government.

In recent months, the central government invited local government officials "for tea" to discuss their real estate markets. In June, this escalated to a multi-ministry meeting and a propaganda blitz. By early July, the "official" line was Housing Chaos in 30 Cities, Crackdown Coming in Second-Half. The message was clear: shut down housing speculation and get prices under control. In mid-July, one city went directly to price controls. This weekend, CCTV had on guests who discussed the end of the real estate growth model (a partial transcript of the show was a top finance article). Even positive efforts by local governments such as the "war for talent" are attracting government scrutiny.

The more free-flowing financial media has also run negative articles on the government's stimulus efforts. In early August, one critic called it a failed strategy and more than one article discussed the positive impact loose monetary policy will have on home prices.

The government could struggle to get a handle on prices for a few simple reasons. First, monetary/credit policy is the most important factor for home prices. Two, it's now confirmed the government will promote lending. Three, the government has never succeeded in stopping the flow of credit to real estate and has also failed to direct lending into the private economy. Even if lending gets to the right borrowers, it's unknown if they'll repeat history and misuse loan proceeds for real estate speculation.

One thing is clear today though: the government's jawboning scared real estate developers out of the land market. That's good news for the central planners who want home prices suppressed. It's not such good news for local government officials who rely on land sales to finance their GDP-producing infrastructure investments.

iFeng: 土地市场变盘!大型土拍零成交,开发商不敢激进拿地
The era of "Flour is more expensive than bread" ends!

The land auction market is transformed from summer to autumn, and the heat is cool, almost overnight.

On August 10th, cities such as Hangzhou, Nanjing and Taiyuan carried out land auctions. From the auction process and results, the land auction market has cooled significantly, and some of them have failed auctions. Some even if the transaction is completed, the land price has dropped a lot.
In Taiyuan, the government held an "epic" land sale on August 10. The 8 plots offered were dubbed "gold" for their desirability. Taiyuan hasn't offered this many plots before and seldom offers such quality locations. Real estate insiders expected it would generate a frenzy and even result in the crowning of a new land king. The city hoped to raise at least 13 billion yuan. Result: a failed auction. Zero sales.
Taiyuan 13 billion yuan failed auction

On August 10th, Taiyuan City held a large-scale local auction called "Epic", which took out 8 gold plots (a total area of ​​about 827,100 square meters) in the hot spot for auction. 130.82 billion yuan. However, the results were unexpectedly unexpected, and all 8 plots of land failed to sell.

The eight plots are located in a better area with convenient transportation and complete facilities. The starting price of the plot is at least 1.171 billion yuan, up to 1.963 billion yuan.

Due to the fact that there are few hot spots in the history of land auctions in Taiyuan City, and eight public auctions were offered at the same time, according to the past practice of “every shots must be taken” in Taiyuan, industry insiders expected that this auction may bring the highest land prices of the year. The highest floor price, and a new land king.

But the results have surprised many people. Of the 8 gold plots, only one of the two plots has a housing company to sign up, and the remaining six plots are unattended. There are 2 plots registered by the real estate enterprises. Since the bid price has not reached the auction reserve price, no transaction has been successful.

Local industry insiders told reporters that the land price is higher than the expected value of the real estate market price, which is the main reason for the auction. The auction price of the 8 plots of the auction was high, and the housing enterprises worried that the future sales price would not go up after taking the land, thus affecting their profits.

It is understood that from 2011 to 2016, Taiyuan house prices have been hovering around 8,000 yuan / square meter, but starting from 2017, house prices rose linearly, breaking through 10,000 yuan in a short period of time, an increase of more than 30%. At present, the average price of brand developers is around 14,000 yuan / square meter.
Three plots in Hangzhou

In the first half of this year, Hangzhou was ranked first in the country in terms of land transfer fees. On August 10, a total of 3 home plots and 1 commercial site auction were auctioned. The total land sales area was 95,100 square meters, and the total construction area was 187,000 square meters. 1.564 billion yuan.

In the auction, Songdu Shares, Good Home and Xuhui's Hangzhou Linsheng Real Estate Co., Ltd. won the corresponding homesteads with a reserve price of 788 million yuan, 509 million yuan and 219 million yuan respectively. The corresponding floor prices were 9800 yuan respectively. / square meter, 9700 yuan / square meter, 9400 yuan / square meter.

In the second half of the year, the Hangzhou soil auction market has shown a cooling trend.
Nanjing land prices have fallen sharply

On August 10th, Nanjing sold two homesteads in Jiangbei New District. Although many housing companies were involved, the competition was fierce, but the final transaction price dropped by nearly 3,000 yuan/square meter compared with the previous “land king” price.

These two plots are the last shot of Nanjing under the rule of “Exceeding the maximum price limit for the affordable housing area”. After that, the “competition area” will be fully implemented.

The two plots are located in the core area of ​​Jiangbei New District, with a total area of ​​nearly 270,000 square meters. Among them, the starting price of G06 plot was 4.84 billion yuan, and after 81 rounds of bidding, it was won by China Overseas Real Estate for 5.64 billion yuan. The G07 plot has been auctioned for 71 rounds and was won by Chongqing Yiyi, a subsidiary of Hong Kong Land, for a premium of 700 million yuan.

According to industry insiders, although the above two sites are fiercely contested, the highest price is obviously limited. The highest floor price calculated is about 20,000 yuan/square meter, compared to the surrounding area prices of 23,000 yuan/square meter, it was reduced by about 3,000 yuan / square meter.

In fact, in the second half of the year, the Nanjing land auction market has been cooling down. On August 1st, Nanjing concentrated on the transfer of 6 plots, of which 3 were sold at the end price, and the other 3 bids were not more than 10 rounds.
The sudden cooldown follows a month where land sales were strong in third- and fourth-tier cities.

Caijing: 土地市场“退烧” 前7个月流标796宗
In stark contrast to the fiery situation in the land market in the past two years, this year, the land market in the hotspots of the country has changed from the past to the past, not only has the transaction become more differentiated, the premium rate has continued to decline, and the number of land flow targets has increased sharply.

According to data provided by the China Index Academy, in July, among the 300 cities monitored by the country, the total amount of land transfer fees was 395.8 billion yuan, a year-on-year increase of 9%. Although a total of 2,087 land transactions were made, an increase of 5% from the previous month and an increase of 7% from the same period of last year, the differentiation trend became more apparent. That is to say, land transactions in first-tier cities fell year-on-year and month-on-month, while second-tier cities saw a slight increase from the same period last year, while third-tier cities rose year-on-year and quarter-on-quarter.

Zhang Bo, chief analyst of 58 Housing Research Institute, said in an interview with Securities Daily that the land market is often a “barometer” of the real estate market. In July, the land market showed a cold and three-line hot situation, which undoubtedly showed The future of housing enterprises is “cautious” for different cities. From the perspective of first-tier cities, the low land transaction is directly related to the current market cooling. On the one hand, the prices of new homes and second-hand houses in first-tier cities continue to fall, leading to more cautious expectations for future enterprises; on the other hand, they are affected by the price-limiting policy, and the profit-taking space of housing enterprises has narrowed. The psychological pressure of the ground is greater.

iFeng: 未来地方政府的工作是“坚决遏制房价上涨”
If we don't want the house price to rise, we must focus on two aspects: First, the land price should not rise again, and second, resolutely curb real estate speculation.
Limiting land prices can be effective, but it cuts off a source of government revenue:
On the issue of housing prices, the central government has also changed from the original "to curb the excessive rise in housing prices" to "resolutely curb the rise in housing prices." In other words, the problem of excessive housing price increases has been resolved, and the next step is to solve the problem of rising housing prices. According to this requirement, the next price must at least not rise. As a result, the requirements for the place have also been upgraded. In the past, the idea that as long as the increase was not higher than elsewhere, it would be useless, and it must be ensured that house prices no longer rise. If the house price does not rise, we must focus on two aspects: First, the land price should not rise again, and second, resolutely curb real estate speculation. Not letting land prices rise is equivalent to cutting off local sources of land revenue. Obviously, solving the local government reliance on land revenue is part of the solution.
AFter rising land prices, continually rising house prices are closely related to real estate speculation. It is precisely because of the existence of real estate speculation that demand has become more vigorous and has become a false prosperity. Therefore, curbing real estate speculation is very effective and effective in curbing housing price increases. It is also very important.

Grasping these two key points is equivalent to grasping the lifeline of rising house prices. Not only will market behavior become more standardized, but the market order will become better and better. Market behavior has been regulated, the market order has become better, and housing prices will naturally be attributed to rationality. Buyers do not need to purchase housing through overdraft future and overdraft.
China has scored an early success with jawboning. Land auctions are public and everyone will know which developers are bucking the central government. What's unknown is whether smaller developers and speculators will follow their lead. While house-flipping is near impossible under strict regulations, there's still great incentive to buy homes at suppressed prices because when controls eventually lift following a wave of credit expansion, prices will resume their rise.

The government's limited success is not without costs though. It has now transferred the cost of deleveraging and real estate control onto local governments. Back in 2014, falling land sales slowed local government infrastructure investment and even raised the potential for local government defaults. As the current real estate crackdown was taking shape, local governments have already begun showing signs of financial stress.

Tip of Iceberg Hit: Chinese City Overdue on Illegally Raised Shantytown Renovation Shadow Loans
Since the real debt data is in the hands of local governments, it is not disclosed. At present, there is a lack of complete, accurate and persuasive statistics on the scale of local debts. However, the scale of local debt has become a consensus. Some scholars estimate that the size of implicit debt of local governments is about 2-3 times that of explicit debt.
Local governments may have borrowed as much as 60 percent of GDP in one conservative estimate and closer to 100 percent of GDP if the skeptics are correct about the scale of off-balance sheet borrowing. Without land sales or another source of revenue, deeply indebted local governments will have to ramp up borrowing to pay existing bills. Then borrow some more if they're expected to help boost GDP.

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