Archive for International News

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.

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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!

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Taking the RMB out.

I don’t know if you’ve been following my twitter, no worries if you don’t.
But I mentioned that I’ve been seeing a lot of buddies of mine taking their collateral and snubbing the banks because they won’t feed they’re ever growing appetite for capital anymore.

They’re is an endless option for capital out there if you’re willing to pay the price  (30% interest in some cases).
And just for your info, my twitter is shanghaiplace.

We’ll don’t wanna say told you so. But ya know….

The mainland’s four largest banks have been hammered by a big outflow of deposits that are ending up in private lending markets, the state-run China Securities Journal reported yesterday.

In the first 15 days of September, combined deposits at the big four plunged by 420 billion yuan (HK$512.7 billion) from the end of August.

Bank of China (3988) saw a drop of 180 billion yuan, while deposits at the Agricultural Bank of China (1288) fell by 140 billion yuan, the paper reported. No figures were given for ICBC (1398) or China Construction Bank (0939).

The sharp decline in deposits slowed down banks’ lending. New loans given by the big four amounted to only 87 billion yuan in the first half of September, versus 186.7 billion yuan for August.

“Amid high inflation and real negative real interest rate, clients prefer withdrawing their money out of the banks for loan-shark lending,” said Hu Yu, a Shenzhen-based analyst with Chinalion Securities.

Deposit rate in underground lending businesses in Wenzhou, Dongguan and Fuzhou are said have hit 36 percent a year – 10 times the benchmark one-year deposit rate of 3.5 percent.

Even state-owned firms such as China Mobile (0941) have set up a financial arm to venture into the loans business, while PetroChina (0857) already has a number of financial vehicles in place. Meanwhile, local fund manager Value Partners (0806) and jewelry retailer Man Sang International (0938) have started a microcredit business in the mainland. NATALLIE CAI

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Merrill Lynch expects China to be the first to make the turn

Merrill Lynch came out first to say that growth has bottomed out in China during March.
Car Sales are through the roof but the manufacturing industry is still not out of the woods.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a9MWMeXMvBP8&refer=home

I’ve spoken to some investors lately though, and it seems they’re quite confident for 2009 and their businesses here, that’s significant, because most of them are still withdrawing money abroad to invest it in china.

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Stats, Stats, Stats

Lot’s of news out there these days, and since the global crisis is effecting our market too now (expats staying home, bars closed, shops closing everywhere) I think it will be fun (or better depressing) to look at some stats.

Random order, no hierarchy.
Shanghai’s housing prices have taken a significant dip in early ‘09:

Shanghai’s sold square meterage is at a three year low, prices are still way higher than at the time, but inventory does not move.

 

Remember that the RMB is still pegged to the US Dollar, and unfortunately for us, the housing market here is highly depending on currency hedges.
Though the RMB/USD appears stabil at the moment, I believe the bailout will dissolve any resistance left in a few month.
The Shanghai Real Estate Market, like it or not, needs a strong Dollar, or at least Euro, to keep the current levels of rentals.
And more important, enable homebuyers and investors from abroad to pay back their credit here. 

US Treasury:
Looks like there is a downwards trend coming, and I really don’t think china still believes that’s the safest place to put their money.
Who would, right now, in their right state of mind lend the US Government money at 30yrs for 2.2%?
Check here to understand the compound interest behind the first part of the chart.

  a
US Dollar movement and trade volume 

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Manufacturing contract in last four months of ‘08

The recently released ISM Data showed that the manufacturing sector is contracting at a severe and accelerating rate.

It’s one of the lowest readings in the last 60 years. 
In the chart below, above 50 means expansion, below contraction of the sector.

 

WSJ data also clearly showes that all markets, including india and china are following the global downward spiral.

With rising retail bancruptcies in the U.S. and consumers tightening worldwide this seems to be just the beginning of a long road to recovery.

A side thought,
with 700 Billion Dollars (maybe soon 2 Trillion after Obama), the US Dollar will probably take an amazing dive.
The new money (or paper) taking away value from the already existing money.
And with china having their own domestic slowdown (god forbid me say recession) it’s unlikely that they will bail out the dollar.
Seeing their US Treasury Bill investement evaporate into thin air, I find it very possible, that maybe, just maybe, the government will actually begin to get rid of some USD reserves or trade it into some real value.
(Land, Energy, Oil, Alaska…)

They warned many times, that they can’t “invest” forever, and they will at some point stop to do so. 
Hmm, any thoughts?

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Chinese & American Real Estate; Sou Fun to the Rescue!

This is just amazing, Sou Fun has recently started a registration of it’s Sou Fun VIP Card Members to collectively fly to the United states and buy up distressed real estate in Los Angeles, New York, Las Vegas, Long Island, San Francisco and Washington (all places were chosen because of higher chinese populations).
So Far, more than 300 people have registered, minium registration were 1 Million Rmb, or about 140′000 Rmb.

Sou Fun VIP has succesfully launched many “group buy” visits to places around China were it’s members bought up distressed real estate and got volume discounts.
During the last 2 days were the “Tuan Gou” (which means Group Buy) days hosted buy the card. 
There is several organizations like these in China, and people love to buy loads of stuff together and get discounts, but I still think that this works so successfully in Real Estat is just amazing.

The latest numbers of the festival:
Day One, December 20th; 304 Units sold, more than a 100 Million Rmb worth of Chinese Real Estate divided into 20 different developements. 

Day Two, December 21st (today) 252 Units sold so far (by 1pm local time).
Check out the pictures here

More than 2000 Members participated hunting for real estate bargains across the country.

Will it be the same for the U.S.?? What impact will they have? 

Chinese have lot’s of savings, and their favorite way to spend money is buying real estate.
If Sou Fun can get this going there is quiet a chance that more companies will follow, organizing similar trips, taking inventory of the U.S. Market.

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City of San Francisco opens business exchange office in Shanghai

ChinaSF, an office of the City of San Francisco whose goal is to help chinese companies move to San Francisco and the other way around has opened it’s office in Shanghai’s flashy Xintiandi area.

Gavin Newsom, the Mayor of San Francisco offically launched the Office with Vincent H. S. Lo who is chairman of Shui On Land (developer of Xintiandi, and the popular Lakeville properties) wednesday.

Newsom also used the occasion to announce a successful deal through ChinaSF that will bring Trina Solar and China Daily to the californian City.

“San Francisco wants to be the premier Gateway for chinese Companies to the U.S.” the mayor said. 
It sort of seems logic to open an office to Shanghai, China’s Gateway to the west.

San Francisco is the second city to launch an co-operative office after Chicago started a similar fundation last year.

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Merrill Lynch to invest 2.65$ Billion in Asian Real Estate

Seems that even in this turmoil there still are some good news out there for the Chinese Real Estate Market.

Merrill Lynch announced that it recently raised 2.65 Billion US Dollars to invest in asian Real Estate.
Attractive to the funds will be mainly commercial properties in Japan, China, India and South Korea.
The Company also said it is considering investements in south-east asia and australia if the price is interesting.

Tim Grady who is the managing director of the firms commercial real estate investment arm in Asia said:
“We see exceptional opportunities in Asian real estate over the medium and longer term,” 

JP Morgan and Citigroup also announced funds of 1.3 Billion and 1 Billion US Dollars it plans to invest in Chinese and Indian Real Estate.

Though this is mainly a good event developers in China shouldn’t cheer to early.
Because of the low sales volume the Merrill Lynch and it’s competitors know that chinese real estate developers are starving for cash and financing and are therefore willing to give deep discounts to get rid of inventory.

If volume continues to fall in the coming weeks there will be quite a few large properties that an investor with sufficient cash can pick up for cheap.
They are also likely to hold out for a bit for the best deals.
Probably most of these attractive properties won’t pop out in Shanghai, since I only see some distressed sellers in the outer districts of developements with low margins, hardly anything that would fit in the portfolio of the investement banks that have until now mostly invested in up-scale luxury residential properties and downtown office towers.
Personally I’m  looking forward to see what kind of deals will come out of it.

Filed under: China Real Estate, General News, International News, Market News | , , , |1 Comment

How the Financial Meltdown is affecting Shanghai Real Estate

The financial crisis is affecting industries around the world, it is also affecting china’s real estate market.

Three Chinese Banks reported investment exposure to the firm that recently filed fo chapter 11.
“Leading the pack” is China’s Industrial and Commercial Bank (which had to give up the title as the world’s largest bank due to the plunge it’s stock took as soon as the news surfaced),  with a 151.8 Million US$. 
It’s followed by Bank of China (76 Million US$) and China Merchants Bank (70 M US$). 

The news had a devastating effect for the Companies stocks as mentioned earlier, Bank of China fell 17%, ICBC 25% and China Merchants Bank 27%. 
BoC and ICBC have recovered but China Merchants Bank, ironically China’s most profitable bank is still 11% below the 20 Rmb Share price it had before the news hit.

Lehman and Brothers Bankruptcy actually has a closer relation to the Shanghai Real Estate Market than meet’s the Eye. 
The Firm has a 6.65% Investment in the Greentown Group, a large Developer of Real Estate in Shanghai and the Yang-Tze Delta, it’s stock has since fallen 32%. 

Taking a closer look we find how close many of these banks are tied to shanghai real estate market.
Citibank, Lehman and Brothers, Merril Lynch and Morgan Stanley all own significant property in the City.

As liquidity became a problem these banks tried to solve they put their real estate assets in Shanghai up for sale.

In February 2007 Lehman and Brothers acquired Shanghai’s Hongkou Fuhai Plaza for 450 Million Rmb through a property auction. 
After a complete Renovation, Lehman and Brothers re-opened, re-named (to be called Sheng Bang Guo Ji or Surbana International). 
Several Financial Newspapers in China have rumored that Lehman’s China Company is going to sell it’s share in the Building, but until now, space is still for rent by Lehman and Brothers
Real Estate Co. Ltd Shanghai for 5.5 Rmb a square meter a day.
The Property is located at Sichuan North Park on Sichuan North Road, nearby the new 8 Degree’s development a contender for Shanghai’s Next Xintiandi.

Morgan Stanley China a bigger player in Shanghai has been trying to spin-off some of it’s real estate assets in Shanghai.
It is selling Lanson Place for 1.1 Billion Rmb which includes 50 Parking spaces, 18′000 Square Meters divided into 108 serviced apartments and a 1300square meter club house (which also houses the ferrari shop in xintiandi).
Next in Line will be the Chataeu Pinnacle which it bought for about 760 Million Rmb back in 2006. (a hell of a deal at just 28k a square meter considering the wellington garden is selling at 50K and doesn’t have as high a profile as the Pinnacle).
Other notable property transactions by the firm are the popular Shanghai Square ( you probably been to Babyface, well it’s that building), of which it bought 92% for 846 Million Hong Kong Dollars in 2005.
They also own that weird golden skyscraper near People’s Square which is called the “World Trading Plaza”. If you’ll ever go down the are of Fuzhou Road or by the Westin Bund Center, it’s hard to miss.
Literally all golden. (see picture to the left)
The Bank owns plenty of other properties in the City and is continuing to invest, recently it’s rumored it bought a lot of units of the new Novel City Compound in Xujiahui and it has invested 1.3 Billion Yuan in a joint-venture to develop a plot of Land in Luwan District.

Citibank has already sold it’s Minhang investment in CaoHe Garden, and Merrill Lynch has it’s Nanjing West Road Project for sale.

Yet, as america’s former investment powerhouses are having a firesale other companies are looking forward to making the “investment of a lifetime”. 
The Chairman of Hang Lung Properties (the developers of the Grand Gateway and Plaza 66) said they are allocating 5 Billion $ for future projects in China and already has 9 developments close to completion.

‘China is an opportunity of a lifetime and we are buying land for future projects,
the biggest opportunity in China would include the large commercial and retail investments which could still bring in double-digit returns.
Property is a long gestation industry’

Ronnie Chan told the Forbes Global CEO forum.

 

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