One of these lines is not like the other…
© The Financial Times Ltd 2016 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
Credit pricing, yeah?
From a rather good Bloomberg piece:
Having found themselves shut out of local bond and loan markets seven years ago, a band of developers began looking elsewhere for funds. First an initial public offering, and then a dollar bond sale. It became a well-trodden path. By 2010, a core group of four — Kaisa Group Holdings Ltd., Fantasia Holdings Group Co., Renhe Commercial Holdings Co., Glorious Property Holdings Ltd. — raised a total of $5.6 billion. On Monday, Kaisa buckled under $10.5 billion of debt and defaulted.
China’s home builders became the single biggest source of dollar junk debt in Asia amid government measures to prevent a property bubble. Developers already funneled $78.8 billion from international equity and bond markets into an industry that’s grown to account for one third of the world’s second-biggest economy. Most of the first rush of dollar offerings, in 2010, falls due in the next two years.
From the FT:
Local governments in some of China’s smallest cities are snapping up an increasing amount of their own land at auctions, in a destructive cycle designed to prop up property prices but which is ravaging their own finances.
Local government financing vehicles in at least one wealthy province, Jiangsu, which borders Shanghai, accounted for more land purchases than property developers did in 2013 — the last year for which data were available — according to research collated by Deutsche Bank…
Rumours of stabilisation in China’s property sector abound…
From UBS’s Wang Tao (our emphasis):
New property starts leapt up by 43%y/y in October reversing September’s marginal 0.2%y/y decline, as sales narrowed their pace of contraction from 10.3%y/y previously to 1.6%y/y…
Sometimes it’s all about the ski chalets.
On which note, Knight Frank’s latest dive into the world high-altitude snow-dusted living offers some interesting findings. Among them is the fact that putting your investment money in twee wooden cabins is actually becoming a bit of a thing: Read more
This is not new, but bears revisiting, given recent events.
Between 2009 and 2013, as part of its sale and leaseback plan, Tesco used a series of six special purpose vehicles to issue close to £4bn worth of property bonds. Structured with the help of Goldman Sachs, the programme even won Tesco an award — Risk Magazine’s 2010 Corporate risk manager of the year.
But Nigel Stevenson, a former M&A banker at Kleinworts who now runs his own research shop, reckons the effect of this off-balance sheet financing has been to artificially reduce Tesco’s net debt by around £2bn. Read more
For a little while it looked as though demand for China property related charts was moving in the same direction as demand for China property, but that pattern appears to have broken recently.
With that in mind, here’s StanChart’s quarterly survey of 30 senior managers — most of them small, unlisted developers — in six cities (Hangzhou, Lanzhou, Baoding, Foshan, Huangshi, Nanchong). Read more
Today in Chinese efforts to shore up the property market, from Bloomberg:
China will revive mortgage-backed debt sales this week after a six-year hiatus, as the government extends help to homebuyers in a flagging property market.
Postal Savings Bank of China Co., which has 39,000 branches in the country, plans to sell 6.8 billion yuan ($1.1 billion) of the notes backed by residential mortgages tomorrow, according to a July 15 statement on the website of Chinabond. The last such security in the nation was sold by China Construction Bank Co. in 2007, Bloomberg-compiled data show.
And from Nomura: Read more
Or London’s Green Belt, at any rate. For the uninitiated it is the giant girdle of farmland that forces the UK metropolis to maintain the figure it had in its twenties — the 1920s.
So here’s a suggestion that isn’t actually that radical: nationalise bits of it and build on them. Read more
And so it goes, from Nomura’s Zhiwei Zhang:
Today’s 21st Century Business Herald reports that in Jiangsu Province the Rongchen Property Development Co. Ltd. defaulted on a RMB100m trust product that came due last August. The paper says that as yet the principal and interest have not been fully paid.
Separately, in Zhejiang Province, risks have increased with regard to entrusted loans totalling about RMB5bn made by 19 listed companies (as of end-2013) to mainly small and medium-sized property developers. These loans were extended at interest rates ranging from 7.25% to as high as 25%. Almost all entrusted loans made by one of the listed companies, Sunny Loan Top Co. Ltd., were extended to property developers at annual rates above 18%. The paper reports that some RMB600m of entrusted loans extended by four companies have either.
The bank that brought “adaptive pricing” to the China property euphemism table just two weeks ago is getting quite a bit blunter.
We’ll spare you more charts today, but here’s a chunk or two from Citi’s Oscar Choi and Marco Sze who have been forced into a shower of scare quotes by weaker than expected April data (emphasis in original):
A Powerful Loosening “Combo” now a MUST to Prevent a “Demand Cliff”: We believe the physical market has reached a critical point, with potential for broader- based demand shrinkage across different product-ends. Beside the recurring factors like tight credit, HPR [home purchase restrictions] policy, altered ASP [average selling price] expectations due to media reporting, etc, different to FY08/11, the downward pressure on demand is also intensified by new factors, like a weaker economy, RMB depreciation, anti- corruption, outflows of purchasing power to overseas, etc, We believe merely fine- tuning policy by the local gov’ts is insufficient to mitigate this potential correction…
June/July – Last Chance to Shoot the Silver Bullet:
We are now fairly sure there is a serious mismatch between the supply of and demand for charts about China property — more are being produced than will ever be seen. That said, here are a few worth paying attention to:
This week in circularity, from China:
Chinese property companies are buying stakes in banks and raising fears that the country’s already stretched developers are trying to cosy up to their lenders.
Ten Chinese property companies have invested Rmb18.4bn ($3bn) in banks, according to the Financial News, an official newspaper published under the aegis of China’s central bank.
From the FT:
China’s central bank and one of its largest state lenders are holding emergency talks over whether or not to bail out a defaulting real estate developer…
In a case which offers a microcosm of the cracks emerging in China’s shadow banking system, Zhejiang Xingrun Real Estate, the provincial developer, had been offering usurious rates of interest to individuals after being shut out by conventional banks.
Officials from the government of Fenghua, a town in eastern china with a population of about 500,000, the People’s Bank of China and China Construction Bank, which was the main lender to the developer, were on Tuesday thrashing out ways to repay the company’s Rmb3.5bn ($566m) of debt.
Local government officials were keen to downplay the fate of the troubled developer, Zhejiang Xingrun Real Estate, which quickly added fuel to markets already jittery after Chaori, the solar cell maker, this month became China’s first bond default.
Late last year we speculated that if anything was going to disrupt the London property bull market it was going to be a grand exodus, motivated by the economically viable population realising that they could nowadays live and work quite happily outside of city perimeters. You know, the internet and all that.
Knight Frank’s latest wealth report, to be released on Wednesday, has decided that the greatest disruption to established property wealth centres may come from extra-terrestrial advances instead. Read more
We’ve had a look at the relationship between London houses and their occupants before. But a line from “leading economic forecaster” Harry Dent in a interview with the Guardian made us want to go and check out the stats:
“We’ve had bubbles throughout our time – oil, gold, stocks. But China is the biggest bubble in modern history. It’s 30% overbuilt in everything and has huge over-investment. The housing market is valued at 28 to 35 times income in the major cities. London, by way of contrast, is 15 times”.
That sounds like a lot, and it turns out that Greater London overall isn’t quite that expensive. But if you want to go area by area, what is clear is that some parts of the capital are priced well beyond the incomes of most people who live there. Read more
Let’s start the year with a big chart. You may have picked up political rumblings of dissatisfaction in the UK with its commercial housebuilders who, it has been suggested, might be more interested in maximizing profits than building the minimum number of houses the country requires.
Recall the strange protestation signed by almost all of them just before Christmas, designed to reassure that Brits will have a chance to stump up for a new house before any deep pocketed foreigner gets the tour.
But the endless housing debate deserves some much needed context. It arrives via James Meek in the London Review of Books, who spotted this chart published in the 2011 self-build manifesto from the University of Sheffield School of Architecture and Architecture 00:/ (yes that is their name, click to enlarge): Read more