Archive for Economy
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
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.
Haha, the news, always first and ahead of everyone
Shanghai housing prices to drop in ‘12: mayor
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 real-estate agents.
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.
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 Guandian.cn (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%.
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
Channel 1 Mall Shanghai
Blackstone the “glamorous” american buyout firm is selling it’s Channel 1 Mall on Changshou Lu (Shanghai Reailway Station) for 1.46 Billion Rmb to New World Developement (you know the ones that are responsible for that k11 damage done to Huaihai Road, at least this time they’re not hitting prime location in Shanghai).
Blackstone bought the Mall a couple of years ago for 1 Billion RMB from a Hongkong Investment firm when still vacant, it has succesfully transformed it and upgraded it to about 95 percent tenancy ship.
Funny, Blackstone is also actively seeking 5 Billion for it’s China Buyout fund, seen better deals eh?
Oh, and just btw, Greece Default set?
Hmm, heard this in different ways before, a lot of my friends actually predicted a double dip beck in 2008, and 2009, so, is this what’s coming?
For Some, the U.S. is probably already in a recession.
So here Tyler’s Post today.
I’m not sure what this means for the chinese markets, yet I saw another post today on Ritholtz’s Blog, china’s the biggest
producer of Gold in the world.
Guess we’re preparing already .
The day has finally come, though with a debt of 14 Trillion you could have expected folks to sort of agree, to telling the US “dude you gotta stop lending and get your finances straight!”.
S&P cut the U.S. Rating from Triple A (AAA) to AA+ with the outlook negative (you’re not helping!).
Markets are down already on the realization that this inflation, central bank powered recovery is running out of steam, so, I’m quite keen to see monday.
Oh dear, this time, really, this time I won’t panic and sell it all too! I’ll be strong, and I’ll buy on the way down.
Wait, no, maybe I’ll panic.
Dear Shanghai and of course, everybody else reading this out there….
…. happy chinese new year!
I’ve had a break, for the first time in years, and really was able to put some thought into the madness of this Real Estate market we all love.
First, upfront, I’m speculating based on my experience and “insight” into the inner workings of this market.
It’s not a numbers game, it’s as I always say here, plain common sense to me.
And this post is a question asked to the future, not a prediction.
So, now, to get at it.
Recently our real estate firm got a lot of new customers that came directly related to the expo, several countries are sending in people just for the expo, and companies do so though.
That for us amounted to about an extra 30 or so clients that are directly involved in the 2010 Shanghai Expo.
Most will stay for a year starting now and are looking for apartments downtown, though some chose Pudong it was mainly downtown.
Realizing that they’re snapping up lot’s of commodity out there and started putting a small squeeze into a previously relaxed market I asked myself what happens after they all leave.
Obviously, it’ll go back to it’s more relaxed state of 2008 and 2009.
But, how many people are here, indirectly involved with the expo?
And how many will stay, or more importantly leave when their employment contract expires after or during the expo year?
I looked back a few cases, and counted, there is an endless number of advertising client-el that arrived in the city because of the 2008 Olympics, a lot of them left, but some stayed.
I wonder how many stayed just because of convinience for the expo being so close a date?
We had a few engineers and IT people too, from firms, not solely working on the olympics or expo, but with a few projects tied to it.
Will the demand for this highly technical skill drop after?
How significant will the drop be if that’s the case?
I don’t know, it would be a prediction.
What I remember from the short downturn during the financial meltdown i the US is that landlords panicked, and competed against each other just 2 months in when the market was in a seasonal low anyway (christmas, western and chinese new year), resulting in some rents being had at 50% of the previous price.
Things quickly picked back up when the demand for rental properties was back to the usual high of march and april.
This year it started early, and it’s at least partially related to the expo.
Remembering the panic price slashing that time I don’t know if it’s a good thing that landlords went by without the yearly dryspell of places staying vacant for a whole month or longer (obviously, there are places like that, but these are deadbeats, bad places that stay vacant in the hottest markets anyway).
I don’t see 1000’s of places being empty after the expo, but it could easily be, that if a lot of people leave because this thing is over people go back to panic price slashing, just the difference would be that this downturn is for good.
Would a slow rental market affect prices of luxury items in the city?
I think a long slow market could do that, I mean, who wants to sit on a place they can’t rent out for the price of their mortgage?
Will investors scoop the bargains like they always did before, or will they recognize that this slow market might hold for a long time and spark a correction?
And please, don’t take my ramblings to serious!
This is some worthy news, though things are still all gloomy, at least here in china, singers and actresses are splashing the cash again for their new homes.
Gigi Lai, the famous 28-year old actress who is the star of the HK Series “the gem of life” and “ultimate crime fighter” has spend an amazing 280 Million Rmb [plus extra costs] (41 Million US$) for her new Penthouse overlooking Hongkongs victoria harbor.
And Taiwanese actor, singer and pop icon Jay Chow has also gotten himself a new pad in Taipei, 260sqm for more than 70 Million Rmb.
Compared to those two, J.Lo’s new 2.05 Million US$ Apartment in Manhattan seem’s almost too cheap for the Latina Queen.