Indecisive anyone?

Rude Boi, I wasn’t the most gifted kid in workshop class during school.
But even I know you bend a strong piece of metal back and forth and back and forth it eventually breaks.

and back and forth and back and forth…..


Interested Article and Oxford Economic Paper on China Infrastructure spending/waste

Ok, just before you go like, dude, come’on.
I know, many of us here, who are involved in a little local business are aware the the country is wasting infrastructure money on purpose.

And uncovering in the article means in general, one guy was pocketing to much, maybe flaunting his or his brothers in laws riches with fast cars and big mansions, so that his buddies got jealous and/or upset and busted him for it.

But wait, after being cynical, read the numbers people.
It’s big, and going back to being cynical, it’s probably still just 1/10th of the shadow economics real numbers.
Ignorance is bliss ;-)!

To the Links

the Article.
Real Estate, not the big over investment problem in China

The Oxford Review Paper:
Survival of the unfittest, why the worst infrastructure gets built and what we can do about it.

Hey Look, somebody is catching on

Haha, the news, always first and ahead of everyone

Shanghai housing prices to drop in ’12: mayor
China Daily
Shanghai reported the first monthly drop in prices of new residential apartments in October. For the whole of 2011, new residential apartments were sold at an average of 22432 yuan ($3532) per square meter, according to estimates by realestate agents.

Some Interesting Reads this week in Economy and Property China

Some interesting Reads I did this week;

Via Money Morning: China’s Real Estate Blindside could turn into a Real Buying and investment opportunity.
I usually do not follow outside opinions, because for china, looking at news, and research is basically useless.
It’s like reading the bible for a description of the universe (nothing against the bible, meaning you can’t get real facts about the other out of it), but this article seems well thought through.

Via Zerohedge: China Trade Surplus Unexpectedly Rises As Non-EU/US Imports Spike; Crude Imports Relentless

Via Shanghaiist: Canadian Housing Scammer Ryan Fedoruk’s exposed, but not caught.

Via WSJ: Chinese Real Estate Tycoon Sells Gold buys property
now this kid’s got balls.

Via Wall St. Pit: Is it going to be the Year of the Bull (Rogers) or the Bear (Chanos)
rooting for neither! I’m a rabbit!

Datapoints on the chinese Real Estate Downturn

Read an interesting article today on Business Insider by by Patrick Chovanec on the real estate downturn here in China that’s been coming more and more into the light in recent weeks.

He points out how everything is unraveling lately, and funny his first point is the Sanya, Hainan slump, which I’m not going to argue with, for everybody knowing me, knows that we burned our hands and I’m soon going Suicidal with our SHPlace Hainan Division’s business success (or better non-success).
The first couple of months in 2009 turned out amazing, we started with a small office of 5 people (which quicly grew to about 60)  and we’re able to sell units everyday.
Property buyers made it a habit to bribe agents to get units (from a couple of 100k to 1 million rmb even),
and we in turn had to handover those bribes to the developers sales people when they made their pick who gets to buy this super exclusive piece of real estate.
Crazy enough, everybody bought cash, and no loans, as such was the custom in Sanya.
Then soon after, things started to slow, not at once, but in time.

Now, about 2 years later, it’s dead, nobody buys, people who bought aren’t selling, and developers cut prices like mad.
One of the hottest places we marketed has cut prices by 60% this year, and still, it’s hard to find takers.
One should have seen it coming at prices close to those in Shanghai’s hottest location.

Which brings me to the next point, Chovanec argues that it’s a natural downturn and that because the governments moves where started 2 years ago, they haven’t had a hand in it.
I totally agree it’s a bubble, in fact, I have said this since years ago, only to be always proven wrong (semi-wrong, I still think it’s a bubble) time and time again with new price highs.

Being on the floor (I think it’s the Wall Street Bankers term for it) here, we’ve seen and noticed the restrictions, in the beginning, not much changed, not nearly enough to make an impact.
Buying Restrictions are great in theory, but this is china, people always find a way to cross the river.
Nobody in the business I knew took it really seriously, and the few, first restrictions that were added in the beginning were a literal joke and too easy to overcome.

What makes me say the intervention (if it was intended to be in this scale or not I leave up to others to question) has worked is that they added slowly to the pot until the scale tipped.

From where I stand, what in the past year has really messed things up is the credit market, tightening has gotten worse, and more and more you can’t get a loan for that pad of yours.
And they have been quite busy taking more and more measures, because it isn’t easy to restrain this beast that is the chinese real estate market and it’s lending.
Shit hit the fan when developers have found it more difficult too to get access to credit as well, ( we all knew the game from before, “eine hand waescht die andere” but now banks had no money to lend to developers even if they wanted to).
At first this was offset by private lenders, at some point, at least now, that doesn’t seem to be an option anymore either for most.
And adding to that they can’t unload any of their properties because there are no buyers anymore you find yourself in a cash trap.

See this from a developers eye.

You commited to many more project, because you based your future on the ever going trend, profits and turnover were scandalous.
You buy more land, in many cases with requirements to build on it within a certain time frame to keep you from speculating (irony anyone?)
Now you bought this land financed, with only a little cash up front from  your side, and the rest being lent, by banks, institutions and investors.

You count on completed development sales and in-developments pre-sales to give you the needed cash to mortgage yourself more and start building on this land.
You do worse then expected, but still, enough to at least get that shovel in the ground and lay base hoping for things to get better, well, actually,
you EXPECT it to get better, because this is china.
No way the big boys are going to let that horse who pulls their chariot (the economy and growth) run out of water…

Up until now, it looks like this is exactly what’s happening.
You see that they had enough, you kept going way to fast, and this expensive chariot seems to be so worn down, that if continuing at this speed, there will be a full out crash, and it will be beyond fixing.

You realize they tried to tell, slow the hell down boy, or we will, for the sakes of the people on the chariot, nobody listened and like any good roman would do, they take away your hooves so you’ll be in excrutiating pain to keep you from speeding into neverland.

Chinese Real Estate is not going away, and to me, until the 2012 leadership change, I don’t think anything super drastic can happen.

But slowly, they’re weeding out the over eager horses, the ones that pulled to fast ahead, and we’ll be left with fewer who will pull the chariot at a slower, more sustainable space.

Before that, pain.

There is another interesting point in the article, it’s the obvious reliance on local governments on land sales for their revenue.
According to the Article, Dalian’s revenue is down 50% Nanjing and Wuxi about 30% Wuhan Beijing and Shanghai are lingering around 15% from last year.

I’ve said this many times, this is actually a super big problem, which can be solved though.
I believe the chinese need more choices where they can invest their money.
China needed a Bond Market, not the crap that’s out there right now, but at least it’s slowly getting into place.
Something sophisticated where you can spot the cheaters easier because institutions will do their homework and ask questions for their own protection, not your friends who will turn an eye when you play with the numbers (just a little can’t hurt right?) because it’s in their best interest too.

Alright, we're in the shits, Star River sells liquor to offset property slow down

You know when things are bad if one of China’s biggest luxury developers wants to get into the liquor market as a second business.
It might be relevant to them personally (since you gotta drown the sorrow of not selling any units with something hard), but it’s definitely nothing to do, even remotely with property.

According to (chinese investment site focus on real estate), they’re seriously looking into the liquor business for two reasons.
1. It’s very profitable, and much more than the Real Estate property business is at the moment, and they see it as a solution to fill the gap for much needed revenue (credit bust anyone?).
2.  And this latest comment just made me chuckle, not correct, laugh out loud; “It doesn’t cost much to do the liquor business, which could evolve into some kind of winery in the future, and that is somehow related to property developement as well”
from a company expert.

Now I’ve been here for almost 9 years, always in this business, and I see people successfully change careers and industries in months, and very often.
Yet, this is a huge, huge, developer, and I find entertaining, yet scary.
This to me, really makes a statement, that we’re pretty much screwed.

Whats next? Henessy XO Luxury Housing Developements?

Oh, and before I forget, Star River is also the luxury developer who just cust it’s prices for Star River Pudong by 30%.

China eases lending again to well, do what exactly?

I love this, seriously, I mean it seems like the big CP is a tightrope walker very, very high up,
balancing growth, social stability, national security against inflation/deflation, economic disaster and political exodus on it’s pole.

For now we’ve done well balancing the weights equal on each sights, so that the last couple of months of credit tightening has worked to cool the market, yet, we miss the balls to actually see it through, and kill the credit that has allowed speculation, and inter lending, car and art leverage to spur up.

I sort of saw it coming a month ago and just like they rescue us again here, they will tighten credit again, to add more weight and keep the balance  on the pole, until one day, the pole breaks, and we walked up this rope high enough to see us in a seemingly never ending fall.

The New York times article for you

This is why Shanghai Developers still sell better outsourcing sales

Over the years working in Shanghai Real Estate I have dealt with hundreds of leasing and sales offices, some of them run by large corporates like CBRE, J Lasalle, Colliers, DTZ and the likes, and the other half run by the developers themselves.

In terms of sales, well the market was great, all did great, now however, the market is slugging, and you’ll really start to see who provides real skill and value to the table.
Ask Wharf who is trying to sell the No 1 Xinhua Rd managed and sold (trying to sell) together with CBRE but mainly by themselves.
Sold a third in the first week and zero in all the months after that.

I have been going to view commercial and residenntial prime real estate in Shanghai with customers and it’s incredible, how often they will be alienated by the sales department who don’t realize that their name implies their purpose.

Today I called Sun Hong Kai properties to inquire about their mall space, with a customer who has worldwide destinations and defines locations.
The Sales lady picked up the phone, said: “wei, wei, wei” and hung up after muttering some swear words (maybe she thought nobody else was on the line but hey I did hear everything.
Called two more times and have been shoved off because she is “busy”.

The same developer though at another project in Pudong made another customer of mine wait nearly 3 hours a fortnight ago and re-scheduled twice before that.
Needless to say they’re furious, and actually only waited up for the sales people to show up so they can yell at them.

Developers have to realize that even though you’re in a red hot location, you need anchor points in Shanghai to make and define a location.
It makes the difference between the K11 which will never be anything else but an underground food court, and the Grand Gateway Malls in Shanghai which are a destination because of Element Fresh, Da Marco, Wagas, Colabo etc.

You see the people who sold the initial places, and their dedication to customer service and sales which are interlinked and you understand.

Please dear Sun Hung Kai, outsource it to somebody who knows how to sell.

Wenzhou credit squeeze

Shanghai Real Estates greatest friends and enemies, the Wenzhounese have been quite a lot in the news lately.

They probably single handedly created the boom and bust in 2005 here in Shanghai, by coming in groups and snapping up all the property available in Shanghai just to sit on them.

2008 was probably the last we seen of them here in Shanghai, or at least in this kind of mass and behaviour, most of them have exited and started the same scheme in second tier cities and Hainan.

Now it seems, something broke.