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.
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
And the reason we keep going on about lower tier cities, from Nomura:
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.
Who on earth could have seen trouble in the property market coming… Read more
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
UK home-builders trying to move ahead of the political wind on foreign investors buying up London property?
In any case, though we missed this on Wednesday it seems part of the Zeitgeist — eleven of them agreed not to sell UK (read: London) new-builds abroad before they go on the domestic market from next year: Read more
Congratulations Professor Shiller (and Profs Fama and Hansen)!
Let’s celebrate with a quick return to the property market, where he who would not be bullish made his name, in the popular imagination at least. Read more
There was just one detail missing from the exquisite tale of the repossessed flat now on offer at London’s most hideous luxurious residence. The owner.
Well — after perusing this “exciting opportunity” to own 988 sq ft of One Hyde Park — note the apartment number… Read more
Time for some property porn.
It comes from the 2013 Demographia International Housing Affordability Survey – a piece of work often quoted by bubble hunters and rubbished by the property bulls who babble on about flawed methodology. Read more
Ireland: Eurostat is withdrawing a specific reservation, expressed in April 2012, on the data reported by Ireland, relating to the statistical classification of National Asset Management Agency Investment Limited (NAMA-IL). On the basis of documents provided by the Central Statistics Office of Ireland, NAMA-IL is majority privately-owned, following the sale by Irish Life of its stake in NAMA-IL to a private investor. This is a necessary condition for a special purpose entity to be classified outside the General Government sector, pursuant to Eurostat’s decision of 15 July 2009 on public interventions during the financial crisis.
That’s from Monday’s Eurostat release on European government debts and deficits. Monday, perhaps not coincidentally, also saw names put on the announced sale of Irish Life’s 17 per cent stake in Nama Investment Ltd. Read more
“Immobilie porn”, suggests Google Translate but we’re open to correction.
Either way, this piece from the FT on Tuesday makes for good reading. It suggests there may be a bubble building in the German property market with Berlin in particular looking peaky, although that must be caveated with the relatively sedate nature of the market previously. Read more
A chart from Jones Lang LaSalle about who’s investing in London property:
Don’t say we never do anything nice for you. We found four positive signs this week, and while at least three of them might raise more questions than they answer, China bulls should probably just enjoy the moment.
1. New loans data for August looks positive Read more
And why Norway’s property market is still looking ever so slightly peaky.
First, some charts courtesy of Alan Ruskin at Deutsche Bank which point to those countries which maybe haven’t seen the end of their house-price pains. The first chart shows the pain already taken: Read more
For anyone who’s ever looked at the Chinese property boom and had the phrase ‘Ireland of Asia’ cross your mind… this one’s for you.
Here’s a computer-generated pic of a “Euro Chinese Trading Hub” which could be coming soon to the Irish town of Athlone (pop. 20,138): Read more
Uh oh. This can’t be good.
From SocGen’s cross asset research team on Monday (our emphasis): Read more
Vacancy rates on the worst British high streets could hit 50 per cent within three years, as half of all high street leases are due to expire by 2015, says the FT. Research by Jones Lang LaSalle, the property consultancy, showed that record numbers of shop leases are coming up for renewal, predicting that retailers in badly hit areas will walk away from stores when given the opportunity to get out of contracts. Separately, the FT says a record for the most expensive shop rent in the UK has been set with Italian fashion brand Salvatore Ferragamo agreeing to pay nearly £1,000 a square foot a year for part of its space on Bond Street in a sign of rising demand for a presence on London’s most prestigious shopping thoroughfare.
Foreign first-time-buyers are clambering to get into the London office market as sovereign wealth funds and cash-rich individuals seek stable assets amid the uncertainty in the global financial markets. The FT says research from Knight Frank, the property group, shows overseas investors making their maiden investment in the central London office market accounted for a third of the £9.1bn spent last year, while foreign buying accounted for 60 per cent of the overall investment. The surge in entrants to the London property market follows years of growing investment from the traditional economic powerhouses of the Middle East and Asia. Last year was the first in which property in the City of London became majority owned by foreign institutions.