Chinese real estate

Xinhua Finance has published a report on ‘Credit Risks of China’s Real Estate Sector’ that identifies policy risk as the primary risk factor affecting the credit worthiness of the real estate industry.

The report discusses the status of China’s real estate developers, and examines both business and financial issues challenging the industry.

The report explains that China’s real estate sector has benefited from the nation’s strong economic growth and favorable government policy since the beginning of economic reforms.

But with the slowing of the economy and the tightening of credit, Xinhua Finance believes that the recent liquidity problems of the industry are the beginning of a process of unfolding credit risks.

These risks are associated with the nature of the industry and have accumulated over time.
Much, much more HERE.
Source: MarketWatch

Credit Suisse said it maintained its ‘overweight’ rating on China’s property sector despite June new home sales showing weakness in several key provincial cities. It believes a recovery is possible by the fourth quarter.

Credit Suisse analyst Ronney Cheung said low sales figures do not bode well for China’s listed developers who are now struggling to meet their year-end goals.

Transaction volumes from all cities were down 23-56% month-on-month with the exception of Beijing and Tianjin, up 15% and 13% respectively. Shenzhen was the hardest hit, with transactions tumbling 38% month-on-month.

Sales are expected to remain stagnant up to September on fears of potential rate hikes by the central bank in a bid to fend off growing inflation and still-lower transaction volumes during the Olympic Games.

However, there should be a turnaround.

Ronney Cheung said, ‘A recovery in transaction volumes should be expected from September onwards, due to the removal of several concerns and pent-up demand. We estimate developers may further cut prices in order to meet their funding needs and to achieve their sales targets.’
Source: Quamnet

Details on investment activity and transactions for the first half of 2008 throughout Asia have been released by CB Richard Ellis.

Demand has slowed from last year, but is still strong with core investors.

Highly leveraged investors have largely stepped out of the region’s investment markets due to the continued credit squeeze. Fnancially-sound investors remained generally positive on the outlook.

Overseas investors remained keen on acquiring investment properties in China, in spite of the increasing restrictions imposed on the entry of foreign capital.

Properties with offshore equity structures therefore have a significant advantage in the market as they enable investors to avoid time-consuming onshore approval procedures.

Larger developers are seeking to acquire smaller developers with attractively valued development land reserves.
Source: I-Newswire

Real estate sales are in a static mode or shrinking. The buyers are adopting a wait-and-see policty. As a result, a drop in prices, maybe quite steep, seems more and more likely.

The average price for new construction in May in Shenzhen was RMB10,254 per square meter, lower than the price in April.

Zhong Wei, director of the Financial Research Center of Beijing Normal University, said, ‘A spontaneous price adjustment such as the housing price drop in Shenzhen has been completely unexpected, not only by real estate developers but the government also.’

In Nanjing between January and May, 19,758 houses and apartments were sold, nearly 47% fewer than the year before.
In Zhejiang Province house construction increased by 8.3% over the same period last year; sales fell by 13.9%.
In Beijing in April and May this year, new housing reached 1.865 million square meters, while turnover was only 1.707 million square meters. In April alone, supply increased by 995,000 square meters with sales of only 747,000 square meters.
Shanghai’s May new construction sales volume reached only 44.5% of the total amount in May, 2007. The total turnover was only 1.4331 million square meters, and the supply/demand ratio was 1.24:1.

A recent report from the Economic Research Center of Renmin University. said, ‘Nationwide, in the first months of this year, 84.48 million square meters of building was completed, an increase of 20.2% over the same period last year, and the growth rate is 10.3% higher than in the same months last year. But the sales turnover was only 133.64 million square meters, a drop of 4% over the same period last year.’

Nie Meisheng, Chairman of the China Real Estate Chamber of Commerce, thinks China is now experiencing ‘real estate stagflation,’ characterized by rising prices and falling sales volumes.
Source: China Stakes

It is easy to get confused as the heading shows; almost impossible to see an overall pattern. In April non-residential property prices grew 6.5%, rate of growth down 0.4 percentage points.

So non-residential was going up, but not as much as it used to. This decline in the rise is patchy. And there are places where it is all decline.

According to a report released by Centaline (China) Shenzhen-Hong Kong Property Research Center, the average housing price in Shenzhen’s six districts dropped to RMB11,143 per square meter in May, down 23% from a year ago and 7% from April, on Tuesday. Those are substantial drops.

Can Shenzhen can look forward to boom times again?

Wang Shitai, brand manager of Sunstars Real Estate in Shenzhen said, ‘Despite the rise in transactions, I’m not optimistic about Shenzhen’s housing market in the near future.
‘Developers will have to slash prices further in order to boost sales to maintain their businesses. Many have offered prices as low as RMB5,500 per square meter in order to attract enough buyers.’

China Overseas Property, a major real estate developer in Shenzhen, launched a new housing estate, Xi’an Huafu, in Bao’an District on May 31, with opening prices of RMB5,500 per square meter, the lowest in the district this year.

The developer launched another project, Kangcheng Guoji, in early June, and set the opening price at RMB4,988 per square meter.

So, no, the boom days are not likely to return in the near future. And, yes, this is what the government was working towards.

Guo Shiping, an economics professor at Shenzhen University, said ‘When prices drop further and more investors fail to pay the mortgages, all of them will suffer.’ That is what happened with the sub-prime crisis in the United States. Only in China it will not be such a disaster.
Source: Window of China