Chinese Banks Get Around Lending Limits on Property

Buried in an article about the stress tests was this little item:

Drive to cool China property boosted

Although all banks in China are to varying degrees owned by the state, some have been chafing under the government’s property restrictions and have used loopholes to evade them. For example, banks are obliged to demand at least 30 per cent downpayments on mortgages, but some branches have offered generous overdraft facilities to help borrowers get around that.

BTW, the banks were declared secure enough to withstand a 50% drop in prices. Leads one to wonder if they included these little tricks in the analysis. Of course an overdraft facility is probably unsecured. That's better, right?

Based on total investment numbers, house prices in 2nd and 3rd tier cities are more than making up for the small declines in the first tier.


More Chinese cities see property prices fall as result of cooling policies

According to data released by the NBS last Wednesday, real estate investment grew by one-third to reach 2.63 trillion yuan during the first six months of the year.

Despite three interest rate hikes this year, developers have continued to invest in the real estate market, secured by the handsome profits they have raked in from previous sales.

Facing harsh restrictive purchase policies in larger cities, developers have shifted their focus to the country's second- and third-tier cities.

Non-first-tier cities saw their prices increase the most last month, with growth rates between 1.78 percent and 2.72 percent, according to NBS data.

China Economy Falls into Contraction Territory

HSBC's Purchasing Managers' Index (PMI) for June showed the economy on the cusp. The Flash PMI for July shows real contraction. (On the June data release the New Export Orders Index is also the lowest it has been since the the GFC.)

This goes along with this article on the neglected (Small and Medium-sized Enterprise) SME sector.
Money Crunch in China Forces Wave of Small Business Failures

Wenzhou City, a coastal manufacturing hub in China’s southeastern Zhejiang province, can serve as a benchmark for private enterprises in China. By early July, nearly 20 percent of SMEs in Wenzhou had shut down due to disruptions in the capital chain, the Yangtse Evening Post reported.

The business environment for SMEs is even worse now than it was during the 2008 global financial crisis, according to the latest survey by the All-China Federation of Industry and Commerce (ACFIC), which covered 16 provinces, including Guangdong, Zhejiang, and Jiangsu.

. . .

Due to the national macro-control policy, bank loans are biased towards large state-owned enterprises and national key projects. It is very hard for SMEs to obtain bank loans.

Also apropos is this article about the health of loans issued in the black market.
Bad Loans Surge In Chinese Underground Banking System

. . . interest rates they are charging can be as high as 8% per month (i.e. almost 100% per annum), it is hard to see how these businesses can be alive. With rising exchange rate of Chinese Yuan, surging labour and material costs, now these businesses are facing surging financing costs. It would be surprising if none of these businesses fail.

And better yet, companies getting turned away as too risky.
China’s Loan Sharks Turning Away Small Firms

Despite the added costs and risks, business owners told the Hong Kong daily they were turning to loan sharks out of desperation to prop up sagging cash flows – only to be rejected, they said.

“They are now aware of the default risks and reluctant to lend to struggling businesses,” one Ningbo-based businessman said.

More than 7,000 companies have been forced to close in Zhejiang this year, the result of slumping sales, inflation and rising interest rates, according to the People’s Daily, Beijing’s flagship newspaper.

Australia's Shadow Inventory

I like this, Chinese style sniffing around the supply data to get another view on the statistics. These activists used water usage data to determine empty properties.

Flippers do tend to hold inventory off the market, especially if prices are inching downward and they are holding out for better times. Good luck with that, by the way.

Speculators 'locking up' empty dwellings that could be homes

The group's Speculative Vacancy Report says that in Docklands, almost a quarter of residential properties there, 23.32 per cent, are vacant. The official vacancy rate for Docklands is 3.62 per cent.

Other established suburbs with many empty homes, according to the report, include East Melbourne (18.64 per cent), Carlton (11.51 per cent) and Essendon North (13.07 per cent).

Dubai, How Bubble Created Unmanageable Commercial RE Ownership Stratas

The bubble attracted many smaller than usual investors, resulting in patchwork ownership of commercial real estate. And despite the equivalent of nine empire state buildings (and rising) in empty office space, larger companies BUILD if they want to expand in Dubai.

Diced Up Dubai Office Towers Frustrate Big Clients With Tangle of Owners

Negotiations with multiple landlords tend to be long and frustrating, said Ian Albert, regional director at property broker Colliers International. Even when a majority of a building’s owners agree on rents and terms, one will often hold out for a better deal, knowing that the tenant is eager to complete an agreement, he said.

Nice Overview of the Reverse Mergers Trouble

A Bit OT, but a solid article covering the trouble with Chinese companies raising money in the U.S. by pulling on the mantle of a defunct, but still registered, company, like pulling on the hide of a dead animal.

China to Wall Street: The Side-Door Shuffle

But over the last few years, Rino International and scores of other young Chinese companies slipped into the United States stock market through the back door. Rino’s American stockholders later lost hundreds of millions of dollars when accusations surfaced that the company had fudged its books. All told, investors’ losses on these Chinese ventures have stretched into the billions.

The amazing thing about these stories, and they all seem to feature the inability for even large Wall Street players to do due diligence even to protect their own best interests. Except over the extreme short term.

Ouch, Demoted to Selfstyled

Baines at the Vancouver Sun further reflected upon Ozzie Jurock. And he has gone from Real Estate Guru Ozzie down to selfstyled real-estate expert Ozzie

That's gotta hurt.

Perth Prices Continue 15 Month Slide

Much hangwringing going on. The market top for Perth was March 2010. Inventory is slowly shrinking, days on market is slowly climbing (although still well inside buyers' market timing at 82 days, probably why the prices are holding up as well as they are). The forums are full of investor-owners pulling houses off the market because they aren't getting the price they want, ever hopeful the vastly overpriced market will firm up if they wait a bit. Every ounce of momentum, aside from the fickle flights to safety going on in the global markets (keeping bond rates down), is against a recovery. Every one of them. Good luck with holding out. Your neighbor who has to sell should send you a thank you card. Flowers too. And a bottle of wine, even.

Record 15-month decline in Perth house values

According to preliminary data from the Real Estate Institute of WA, the Perth housing market dropped 2 per cent in the June quarter.
Once final sales data is collected, REIWA expects Perth’s median house price to settle at $475,000, a level not seen since December 2007.

REIWA has previously called on banks to drop their interest rates, which could be enough to jumpstart WA’s stagnant property market.

Interest rates won't change the total available credit if foreign appetites for Australian debt don't cooperate.

I really like the headline below. Because, of course, the logical response of a prospective buyer right now is: why not just wait until I get an even better deal? Gotta nip that kind of dangerous thinking in the bud.
Perth house prices unlikely to fall lower Their logic is based on the notion of trade-ups being easier.

Alan Bourke from the Real Estate Institute of WA says activity at the bottom of the market should keep prices stable in the short term.

"There's quite often a knock on effect as people in that market then trade up," he said.

Back to the first article:

Mr Bourke said that according to the initial data, there was increased sales activity in the $350,000 to $500,000 range, with activity in other price segments falling.

So, the median may indeed remain stable, but that's only because hopeful sellers of >500k properties capitulate and price them <500k to move them. The mix at the "affordable" range will begin to include sweeter properties, but the median may indeed remain the same.

25% of Local Government Debt in China Due by End of Year

I don't think we're going to have to wait long to see how the local government debt in China is going to play out. Under-the-table loans made with little oversight backed by the overvalued land and few revenue streams to pay it all back. How's that for a mix?

Tackling local government debt from China Daily

The 10.7 trillion yuan is not a small number, and 80 percent of it comes from bank loans. More than half of these debts have to be paid off between 2011 and 2013. Indeed local governments will have to race against time, as about 25 percent of their loans have to be paid off before the end of this year, and 17 percent next year.

In the first half of 2008, the total amount of local government debt was just 1.7 trillion yuan. At the end of 2010, the figure was up to 10.7 trillion yuan, which was equivalent to 27 percent of China's GDP in 2010, according to the National Audit Office.

So, revenue streams to pay back this debt, anyone?

Finally, we should further expand the range of real estate taxes and fully apply a property tax. The property tax collected by developed countries has already become an important part of public finance at both the state and local levels.

All good in sentiment, but that's probably not going to happen by the end of the year to a degree significant enough to pay back $400 billion. Can local governments toss the balls into the air one more time and sell enough land to cover?

China Executes Two Vice Mayors for Real Estate Related Graft

Real estate related graft and embezzlement.

China executes vice mayors in corruption crackdown

Xu Maiyong, who served as the vice mayor of Hangzhou, had used his official power to interfere with project contracts and help companies acquire land, the Supreme People’s Court said in a statement. He had accepted 145 million yuan (US $ 22 million) in bribes, and embezzled 54 million yuan (US $ 8.3 million) from a government-managed property company. Xu was removed from his post in April 2009.
. . .
In an unrelated case, Jiang Renjie, the vice mayor of Suzhou, another prosperous southern commercial centre, was convicted of taking 108 million yuan (US $ 16.6 million) in cash from property developers.

Vancouver Weekly Sales Numbers Continue Downward

Again, dipping into Agent Will's numbers.

The discontinuities in the chart are, in order, (most likely causes, that is) two mortgage rule changes at CMHC and Canada Day.

Added: This will be the end of the weekly numbers as Will has decided to move on. The Canadian Zillows can not come soon enough.