China - Housing 01 (May 08 - May 10)

[winston]

From UOB-Kay Hian:-

Beijing: sales remained weak. July residential sales were only two-thirds of June’s and nearly 60% lower yoy. Meanwhile, residential prices have slipped by more than 5% since Apr 08.

In addition, according to Beijing Statistics Bureau, Beijing’s residential completion areas were about 5.0m sqm in 1H08, surpassing the city’s total residential sales of 3.5m by 42%.

Given rising housing supply and falling property sales, Beijing’s residential prices are likely to see more corrections in the coming months.

[Dubby]

China developers slash targets
Alfred Liu
Tuesday, August 05, 2008

Major mainland developers have slashed their targets as austerity measures are expected to continue.

Beijing Capital Land (2868) said it has cut its contracted sales target for this year from 800,000 square meters - set at the beginning the year - to 410,000 sq m. The completed area will be down from 1.42 million sq m to 1.03 million sq m. Newly started construction area is expected to decrease from 1.5 million sq m to 600,000 sq m.

"Our total contracted sales revenue [for the first half] was about 1.73 billion yuan [HK$1.97 billion], a decrease of 48 percent from about 3.32 billion yuan in the corresponding period last year," president Tang Jun said yesterday. "Customers from all markets, particularly those in first-tier cities, have adopted a wait-and-see attitude, resulting in a decrease in sales volume."

Beijing Capital Land reported net profit for the six months ended June rose 147.7 percent from a year earlier to 252 million yuan, while earnings per share were 12.43 fen. No interim dividend was proposed.

Meanwhile, Shenzhen-listed China Vanke said area for new construction for the second half will fall to 6.83 million sq m, down 19.5 percent from the target at the start of the year.

[gladiator]

Shenzhen home buyers bugged by mortgage dilemma
By Hu Yuanyuan (China Daily)

To keep paying the mortgage or not? This question has been bugging 28-year-old Chen Jie for a month now.

The price of the two-room apartment she bought in September, located in Shenzhen's Nanshan district, has fallen by nearly 200,000 yuan, down from 11,000 yuan per sq m to 8,200 yuan per sq m.

"The market value of this property has fallen by more than my first installment of 158,400 yuan," says Chen, who is seriously considering giving up the apartment and buying another one on the cheap.

But she also knows clearly the consequences of defaulting on the mortgage: a smudge in the credit record that in turn could mean no credit cards in the future and possibly no more loans either. "I really don't know what to do. But if property prices fall further, I might have to give up the apartment," she says.

Like Chen, some domestic banks are just as antsy. What worries them is that many of their clients are asking themselves the same question as Chen, and coming up with "yes" as the answer. Statistics from Shenzhen Real Estate Research Institute show Shenzhen's property prices dropped 36 percent in May from the peak last year, indicating growing mortgage risks.

Feng Yu, a Shenzhen-based real estate insider, says in his blog that over 300,000 Shenzhen mortgage lenders have seen their asset prices fall and that the scale of Shenzhen banks' potential bad loans could be as high as 100 billion yuan.

"That's far from true. As of May, Shenzhen local banks had outstanding mortgage loans of 220 billion yuan," says a manager at a local bank's credit department who declines to be named. "It's considered bad loan if mortgage payment is not made for 90 straight days."

Shenzhen Banking Regulatory Bureau said on July 25 that local banks' non-performing ratio stood at 0.63 percent by July, down 0.2 percentage points than the beginning of this year.

Most bankers decline to comment, saying "it is a very sensitive moment". Song Liang, marketing chief of China Financial Services Group Limited (Shenzhen branch), a financial intermediary that mainly helps banks to manage mortgage for pre-owned houses, says there are more people deciding not to pay their mortgage this year compared with the last but the number is not as big as some media reports have put it.

"Most people who stop paying mortgages are speculative investors rather than those buying apartments for their own use," Song Liang says. "In fact, property prices in Shenzhen's urban areas don't drop much because of the limited supply and good quality."

In the newly released 2007 Shenzhen Financial Operating Report, by the end of September 2007, 98.5 percent of loans were still in normal status. But the report also says that among mortgage lenders, investment-oriented buying jumped 5 percent compared with 2006, and the proportion of those buying a second or a third home also increased by 14 percent over the previous year, indicating rising risks.

Though mortgage defaults may pick up, experts say it is not likely to trigger a financial crisis as subprimes did in the US, given China's mortgage size and demand for housing. According to the central bank, by the end of March, property-related loans accounted for only 17 percent of all loans in the banking system.

"Some big corrections occurred only in a few cities that experienced crazy property price spurts last year but don't have enough demand to support the market," says Chris Brooke, president and CEO of CB Richard Ellis (Greater China), stressing the market adjustment should be seen on a city-by-city and project-by-project basis rather than an overall collapse.

So far, other cities have not reported mortgage defaults. "Besides, property demand in China is also much stronger than in the US," Brooke says.

But to be on the safe side, most banks have taken measures to improve the mortgage threshold and filter clients more strictly to reduce possible risks.

"Besides the application material that is submitted, such as income statement, we will verify if the apartment that will be bought is the applicant's first or second property, and then check credit records in the central bank's credit collection system," says an official with Bank of China. "But how much mortgage one will finally get also depends on the result of one's property evaluation by three professional evaluating companies rather than the transaction value of the deal."

[winston]

China expects real estate slowdown

Huge profits enjoyed by China's real estate market for the past 10 years have come to an end due to tightening policies and weakening demand, state media reported.

"The era of huge real estate profit-taking is over,'' the Beijing News said, citing an economic review released by the National Bureau of Statistics.

"House price growth is losing momentum as a series of policies on money, land and taxation that target the real estate market has dampened demand and squeezed bubbles in the sector,'' said the review, according to the report.

AGENCE FRANCE-PRESSE

[kennynah]

when n if it correct big time, maybe can start buying those traditional Chinese houses; like those we see in huang feihong shows, complete with courtyards, inner n outer halls. I hear these houses are so expensive, reaching as high as S$5mil n upwards. Then we can start kungfu schools for foreigners. Nan quan bei tui, all the animal styles like praying mantis, tiger, monkey, cocroach, drunkard, etc styles. Easy money
then also setup Chinese Tea Leaves. Hahaha. Retirement planning

[winston]

Mainland flat prices `still not rational'
Alfred Liu
Thursday, August 07, 2008

The mainland government will not relax its tightening measures for the property market until flat prices return to a rational level, according to an official newspaper.

"From the overall trend, the rise of flat prices is dropping month after month, though the range is not large," said China Information News, official paper of the National Bureau of Statistics of China. "It still takes a long road for prices to return to rationality."

The increase of flat prices year-on-year in 70 large-to-medium cities dropped from 11.3 percent in January to a lower level of 8.2 percent in June, according to bureau figures.

Contracted sales area of new apartments in 40 major cities, including Shanghai, Beijing, Shenzhen and Guangzhou, fell 24.9 percent year-on-year for the five months ended May. The sales area of secondary flats in the cities dropped 20.9 percent, according to the mainland newspaper.

It also said that sales area of residential units in Beijing dropped 49.5 percent in the first half, while those in Shanghai fell 18.5 percent. Sales area of Shenzhen primary flats slumped 54.38 percent for the period.

"The fall of transactions means prices are not reasonable and the market has adopted a wait-and-see attitude. Therefore, flat prices are also decreasing," the paper said. It also stated the property market cannot be expected to be optimistic as prices have yet to return to a rational level and its foundation is not yet firm.

[winston]

Shenzhen Properties

The Shenzhen Municipal Bureau of Land Resources and Housing Management reported the average selling price of residential units in Shenzhen, excluding luxury properties, fell to 12,387 yuan (HK$14,121) per square meter in July from 15,080 yuan psm in January, a decline of 17.9 percent.

For the first seven months, contracted sales area of newly-built flats dropped 53.17 percent year-on-year to 1.8 million square meters. Sales area of secondary flats in the same period plunged 69 percent from a year ago to two million sq m.

"The [mainland] property market is under correction ... while the stock market is expecting tightening measures to be eased by the government," said CLSA analyst Nicole Wong.

"Therefore, the upside and downside factors make the stocks swing."

Ngai said China property stocks may fall by another 5 percent to 10 percent before reaching bottom. "We expect the [property] sector to test the previous trough in June. This time round, we believe the selloff will be mainly triggered by earnings estimate downgrades after interim results."

By Alfred Liu
Monday, August 11, 2008

[winston]

From Lim & Tan:-

China’s banking regulator and central bank yesterday ordered banks to be more careful when lending to property developers:- banks should not lend any money to developers for land purchases;
- banks should give preference to affordable housing projects;

The Chinese government had previously introduced various measures to cool the property market such as:
- a clampdown on loans for construction;
- a requirement for developers to build quickly or risk losing their land; and
- a tax on land price appreciation.

COMMENTS

1. The latest measures reinforce the government’s determination to cool the property market, even though key markets have already exhibited meaningful slowdown, eg Shanghai, Beijing.

2. And even though the government has taken other measures to stimulate the domestic economy; eg
- on Aug 1st, allowing banks to increase their lending by 5%;
- on Aug 25th, confirming expectation (first raised by JP Morgan) of a Rmb 200 - 400 bln stimulatory package;
- on the same day, a draft proposaL to allow insurance companies to invest in real estate.

[LenaHuat]

American vultures are heading for bombed-out Asian properties:

Morgan Stanley to launch property fund
(9 mins ago)
Morgan Stanley is raising US$10 billion (HK$78 billion) for a global property fund and plans to invest more than one-10th of the fund in China, despite concern over a downturn in the world's fastest growing major economy, a banking source said.

The fund, to be called Morgan Stanley Real Estate Fund VII Global, the latest in a series of property investment funds, is expected to be launched and begin investing worldwide before the end of this year, said the source, who had direct knowledge of the fund.

The fund plans to invest at least 10 billion yuan (HK$11.44 billion) in China.

REUTERS

[winston]

China property sales unlikely to pick up in near-term despite incentives - DBS

BEIJING (XFN-ASIA) - DBS Group Research said it does not expect China property sales to pick up strongly in the near-term despite improvements to the local policy environment.

DBS noted that an increasing number of city governments have been introducing new incentives to address the continued slide in property sales. Incentives in cities such as Chengdu, Changsha and Xiamen include lowering transaction costs, subsidizing purchases and reducing downpayments.

Shenyang and Shijiazhuang, meanwhile, have redefined "ordinary houses" to allow more buyers to qualify for the lower deed tax scheme, DBS said.

But such policies take time to have an effect. The market is also unattractive for potential buyers, who expect prices to drop further, it said.

"There is usually a time lag effect for new policies to generate any kind of impact. More importantly, as potential homebuyers expect prices to fall further, a waiver in deed tax or a lower requirement for down payment is simply unattractive to homebuyers who expect price correction of 10-20 pct," it said.

DBS added that of the nine cities under its coverage, seven saw sales volume drop by more than 60 pct year-on-year in August. In Beijing, sales slumped 72 pct last month, partly due to the Olympics.

Property developers such as Vanke, Beijing Capital Land, Shanghai Forte and KWG have all revised down their 2008 production or sales targets, and other companies are expected to follow, DBS said.

"Due to weak sales outlook and downward revision of sales and completion target by developers, we foresee more earnings and net asset value downgrades by analysts post-results. Share prices of Chinese developers would still face downward pressure in the short-term," it said.

DBS said it favors market leaders and developers with strong investment property exposure.

Its preferred picks are China Overseas Land (COLI), which is expected to continue outperforming its peers, and China Resources Land, whose investment property exposure should help it weather the slowdown in the residential market.

Strong sales from CR Land's August launches in Hangzhou and Hefei are also expected to ease concern over its slow contract sales this year, DBS said.

The brokerage has "buy" ratings on both companies.

It has a 15.21 hkd price target on COLI, and a 13.4 hkd target on CR Land.

COLI's shares were down 2.5 pct at 11.72 hkd this afternoon in Hong Kong, and CR Land was down 2.63 pct at 8.52 hkd.