In China's Real Estate Market || Today Breaking News About China's Real Estate Market

In China's real estate market 

A man rides past a newly built residential building somewhere in Shanghai, China


TAIPEI- 

Based on recent reports from Chinese and foreign media, state-owned enterprises and central enterprises with government funding backgrounds have been actively rushing into the real estate market recently. No matter the number of land birds, the number of bids won, or the number of mergers and acquisitions of private enterprises, it shows that China's real estate market and real estate industry There may be a trend of "the country advancing and the private retreating". 


In this regard, market observers analyzed that the real estate boom that China once had no longer existed. They said that state-owned and state-owned enterprises aggressively rush into the property market in the short term, which is beneficial to the weak Chinese real estate market, which can stabilize the market and boost consumer confidence. However, if the Chinese government intervenes excessively, it may harm the long-term development of the real estate industry.


Chinese media "First Financial" on Wednesday (June 8) quoted data from the real estate platform "Kerui" and reported that private real estate companies that had aggressively acquired in the land auction market accounted for only 10% of the land acquisition rate from January to May. State-owned enterprises and central enterprises have become the "pillars" of the land market this year. Among them, among the top 50 real estate companies that won the bid amount, state-owned and central enterprises accounted for 74%, which has obvious advantages compared with private enterprises.


Chinese real estate platform "Leju Finance" also reported on June 2 that the "national team" has been the main force in bidding for land auctions in Beijing and Shanghai recently. Taking Beijing as an example, according to incomplete statistics, a total of 30 real estate companies participated in large-scale land auctions in the city at the beginning of this month, but only 4 were private enterprises, accounting for less than 20%. Jian and other central and state-owned enterprises have achieved fruitful results.


In addition, the report of the US media "Wall Street Journal" on June 1 focused on Guangzhou City. It was reported that the city released a total of 18 residential lands in the first round of centralized land auctions in early May, and 17 were finally sold. Among them, Chinese companies, the investment and financing platforms of central enterprises, and local governments won a total of 14 cases, showing that the phenomenon of “the country is advancing and the private is retreating” has appeared in the Chinese real estate market.


Real estate enterprises' "national advance and private retreat" fear monopolizing 90% of the real estate market?

The Wall Street Journal quoted an analysis by Rhodium Group, which pointed out that state-owned developers account for about 15% to 25% of the overall sales of China's real estate industry. Increase its own income, not save private enterprises. The report also quoted the prediction of Chen Zhiwu, a professor of finance at the University of Hong Kong, saying that China's private real estate companies are constantly being squeezed, and within two years, they may be squeezed out of the Chinese market.

Chen Zhiwu, Chair Professor of Finance at the University of Hong Kong (Photo courtesy of Chen Zhiwu)


In an interview with VOA, Chen Zhiwu pointed out that although state-owned enterprises generally give people the image of inefficiency, creativity, and slow market response, China's real estate industry is facing many unfavorable factors, including strict zero-clearing policies, economic downturn, and leading real estate leaders. 


Evergrande and other companies have successively experienced debt crises. In addition, private real estate companies are also facing difficulties such as difficulty in obtaining funds from banks and the government. He predicts that the trend of “state advancing and private retreating” in China's housing market may continue, and state-owned and central enterprises will develop Retailers' share of property sales in China could also surge to 80 to 90 percent.


Chen Zhiwu said: "I think in the future (state-owned enterprises' share of real estate sales) may be 80% or even 90%. Now there is no official policy to squeeze out private real estate companies, but the actual effect is like this. Neither banks nor the bond market dares to provide support to private enterprises. 

Therefore, we have seen in the past two or three years that more and more private real estate companies have defaulted on their debts and have been sold or closed down. I don't see a fundamental reversal of trends."


However, Yi Xianrong, dean of the Qingdao Wealth Management Research Institute of Qingdao University in China, believes that the recent trend in the housing market is only a short-term phenomenon. He said that China's real estate sales reached more than 17 trillion yuan (about 2.6 trillion U.S. dollars) last year, which is by no means a huge market that state-owned or central enterprises can monopolize, and even state-owned enterprises and central enterprises may have debt risks like Evergrande. 

Therefore, he speculates that the recent phenomenon of "national advance and private retreat" is just a short-term phenomenon of the government taking action to avoid the expansion of the debt risk of housing enterprises, not a long-term trend.

Yi Xianrong told VOA:

"Can you guarantee that these state-owned enterprises have no debt risk? Their operating efficiency (compared to private enterprises) is lower, and there may be bigger problems (operation), but now, they are taking the current situation that may erupt immediately. 

The crisis will be suppressed. (The trend of national advance and private retreat) will definitely not be long, because this will definitely cause major problems. State-owned enterprises have taken over such a large real estate market, and the state has no ability to continue. Time may be used for space, and the crisis may be postponed, but it is actually hidden. A bigger crisis lies ahead."

Yi Xianrong, Dean of Qingdao Wealth Management Research Institute, Qingdao University, China (Photo courtesy of Yi Xianrong)


Take Greenland Holdings, a Chinese real estate giant with a background in Shanghai’s state-owned assets as an example. The company announced on May 27 that a US dollar bond with a total principal of 488 million is about to expire on June 25, and is consulting with bondholders for an extension. . One of the major shareholders behind Greenland is the Shanghai Municipal Government. Although it is a state-owned enterprise, it is also in a financial crisis.


State-owned enterprises and central enterprises rush into the market to stabilize the market


Long before state-owned enterprises were actively bidding for land this year, the People's Bank of China and the China Banking and Insurance Regulatory Commission jointly issued the "Notice on Doing a Good Job in M&A Financial Services for Key Real Estate Enterprises' Risk Disposal Projects" at the end of December last year, encouraging state-owned enterprises, central enterprises, and well-established institutions. Large-scale private enterprises M&A of poorly managed real estate private enterprises.


According to a report by the Chinese media "Financial Association" at the beginning of the year, the Guangdong provincial government has invited the executives of state-owned and private enterprises including Aoyuan Group, R&F Properties, and Yuexiu Properties to a meeting, which is suspected to be the connection between the two parties. 

The Chinese media "The Paper" also reported in February that Shimao Group, which is under huge debt pressure, has negotiated with the Shenzhen government about the issue of state-owned shares. 

In addition, the Chinese media "21st Century Business Review" reported in May that the Chongqing private enterprise Jinke Real Estate, which raised the debt alarm, is leading local state-owned enterprises to invest in shares, including platform companies in Liangjiang New District, Chongqing.

He Luosheng, Director of the Pan Sutong Shanghai-Hong Kong Economic Policy Institute, Lingnan University, Hong Kong (Photo courtesy of He Luosheng)


In this regard, He Luosheng, director of the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute of Lingnan University in Hong Kong, analyzed that most of the private housing enterprises in China rely on debt to support their debts, and the debt leverage is relatively high. The predicament of lowering the debt ratio. 

At this time, the official mergers and acquisitions of state-owned enterprises and central enterprises or investment in private enterprises is a very obvious signal to rectify the housing market, but it does not help to reorganize the troubled private enterprises. He Luosheng said that at present, the state is advancing and the people are retreating, which is "a solution out of nowhere", with the purpose of stabilizing the housing market.

Three Red Lines Policy:

In 2020, the CCP launched the “Three Red Lines” policy to reduce the debt and financial leverage of Chinese property developers. The "three red lines" represent 1. The asset-liability ratio of the housing enterprise after excluding the advance receipts shall not exceed 70%; 2. The net debt ratio of the housing enterprise shall not exceed 100%; 3. The "cash/short-term debt ratio" of the housing enterprise shall not be less than 1.


He Luosheng told VOA: "The 'three red lines' have hit hard. In the past two years, (China) has taken many measures to rectify the market. Personally, in my opinion, there have been extreme situations. It can play a role for private enterprises, but it is not very useful. Now the worst situation of Chinese housing stocks (mainland real estate stocks) has passed, but it should not be possible for (the housing market) to really recover, and it can be expected to stabilize. "

Lin Changnian, CEO of Hong Kong Zhiyi Oriental Securities Co., Ltd. also agrees that the government's action can avoid the collapse of home buyers unable to collect on time. For the weak housing market, it is a short-term benefit and a necessary measure, but he warned that if the government intervenes Too deeply, China's long-term real estate development is not optimistic.

Lin Changnian, Chief Executive Officer of Hong Kong Zhiyi Orient Securities Co., Ltd. (Photo courtesy: Lin Changnian)


Lin Changnian told VOA: "This is positive news, at least the projects they (state-owned and central enterprises) have completed, and the people will not fail to receive the building. It is an inevitable way to clean up the mess. (But) it becomes real estate. For the government to manage, it is not a very good market development, but now the private real estate companies are in a mess, and there is no way."


State-owned enterprises rush to avoid the housing market bubble, only the prosperity is difficult to reproduce


According to data from CRIC Real Estate Research Center, as of the end of May this year, 20 cities in China have relaxed purchase restrictions, 25 cities have relaxed loan restrictions, and 14 cities have relaxed sales restrictions, showing that Beijing has loosened real estate policies and boosted the sluggish housing market. and economy.

Hong Kong Market Place


However, the housing market still showed a bottoming trend in May, and there was no rebound.


According to the latest statistics, the residential transaction area of ​​30 major cities in China in May only edged up by 4% compared with April, but still fell sharply by 59% compared with the same period last year. In the first five months of this year, the cumulative transaction area of ​​30 cities also dropped significantly by 51% compared with the same period last year, highlighting that China's housing market is still facing downward pressure.


In addition, data released on June 1 by the China Index Research Institute, which specializes in China's real estate index, showed that the cumulative price of second-hand housing in the first five months of China's 100 major cities only increased by 0.19% compared with last year, while the cumulative price of newly built housing also increased by only 0.11%. %, both the growth rate narrowed compared with the same period last year, which means that China's housing prices are still in the consolidation stage.


Lin Changnian of Zhiyi Oriental Securities said that Chinese state-owned enterprises and central enterprises rushed to invest and borrowed more conservatively, which can curb the bubble crisis in the housing market. Lin Changnian said: "If state-owned enterprises rush into the real estate industry, it will not be so easy to create a bubble, because they are regulated by the party and will not borrow excessively."


Chen Zhiwu of the University of Hong Kong said that Chinese consumers have greatly increased their risk awareness after the bankruptcy of Evergrande and other private enterprises. But there are indications that the "glorious period is over" in China's housing market. Unless China's economy deteriorates rapidly in the second half of the year, the government will not expand its support for private enterprises, which will further weaken the importance of private enterprises in the future housing market.

Chen Zhiwu said: 

"In the next few years, real estate companies will experience challenges. The main reason is that real estate companies need a lot of financial support, and these banks and investment institutions that have financial resources, not to mention regulators, are very interested in private enterprises. 

If it weren’t for the government to maintain economic growth and help local finance find some sources of income, the importance of the real estate industry in China’s economy would have been underestimated. Compared with the main generation of millionaires (time), it will be difficult to reproduce this situation (prosperity) in the future.”

US Media:

The US media Bloomberg reported on Monday (June 6) that Beijing's one-year rectification of the housing market has hit several real estate developers hard. Among them, the total assets of real estate tycoons have plummeted by about $65 billion. For example, Evergrande chairman Xu Jiayin lost nearly $24 billion in worth, while Sunac China founder Sun Hongbin’s fortune plummeted by nearly 90 percent.

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