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China Central Bank to Offer Cheap Loans to Support Developers’ Bonds

Julie Zhu and Engen Tham wrote . . . . . . . . .

China’s central bank will offer cheap loans to financial firms for buying bonds issued by property developers, four people with direct knowledge of the matter said, the strongest policy support yet for the crisis-hit sector.

The People’s Bank of China (PBOC) hopes the loans will boost market sentiment toward the heavily indebted property sector, which has lurched from crisis to crisis over the past year, and rescue a number of private developers, said the people, who asked not to be named as they were not authorised to speak to the media.

China has stepped up support in recent weeks for the property sector, a pillar accounting for a quarter of the world’s second-biggest economy. Many developers defaulted on their debt obligations and were forced to halt construction.

The country’s biggest banks this week pledged at least $162 billion in credit to developers.

The PBOC loans, through its relending facility, are expected to be at much lower than the benchmark interest rate and would be implemented in the coming weeks, giving financial institutions more incentive to invest in private developers’ onshore bonds, two sources said.

Terms such as the interest rate on the loans were not immediately known.

The PBOC is also drafting a “white list” of good-quality and systemically important developers that would receive wider support from Beijing to improve their balance sheets, two of the sources said.

The central bank did not immediately respond to a request for comment on the planned measures.

At least three private developers – including Longfor Group Holdings Ltd, Midea Real Estate Holding Ltd and Seazen Holdings – received the green light this month to raise a total of 50 billion yuan ($7 billion) in debt.

If there were not enough demand from investors for such new bonds, the PBOC would likely step in to provide liquidity via the relending facility for the rest of the issuance, said one of the four people and another source.

Hong Kong’s Hang Seng Mainland Properties Index was up as much as 4.7% on Friday, adding 1 percentage point after Reuters reported the PBOC moves. China’s top developer by sales, Country Garden, was up 10%, CIFI Holdings was up more than 5% and Longfor nearly 4%.


Relending is a targeted policy tool the PBOC typically uses to make low-cost loans to banks to support the slowing economy, as the central bank faces limited room to cut interest rates on concerns about capital flight.

The PBOC in recent months has used the relending facility to support sectors including transport, logistics and tech innovation that were hard hit by the COVID-19 pandemic or are favoured by long-term state policies.

Beijing’s aggressive support for the property sector marks a reversal from a crackdown begun in 2020 on speculators and indebted developers in a broad push to reduce financial risks.

As a result of the crackdown, though, property sales and prices fell, developers defaulted on bonds and suspended construction. The construction halts have angered homeowners who have threatened to stop mortgage payments.

The PBOC also plans to provide 100 billion yuan ($14 billion) in M&A financing facilities to state-owned asset managers mainly for their acquisitions of real estate projects from troubled developers, two sources said.

Chinese media reported on Monday the central bank planned to provide 200 billion yuan in interest-free relending loans to commercial banks through the end of March for housing completions.

Among other recent official support, China’s interbank bond market regulator said this month it would widen a programme to support about 250 billion yuan ($35 billion) of debt offerings by private firms.

Much of Beijing’s previous support targeted state-owned developers.

Yi Huiman, chairman of China’s securities regulator, said on Monday the country must implement plans to improve the balance sheets of “good quality” developers.

Fitch Ratings said on Thursday private Chinese developers face higher liquidity risk, in terms of debt structure with greater short-term maturity pressure, than state-owned peers as banks and other creditors are becoming reluctant to lend.

Source : Reuters

Charts: U.S. New Homes Sales Unexpectedly Rose in October 2022

Median Prices Jumped to All-time High

Source : Bloomberg

‘No Tears Left’: Hong Kong Property Agents Resort to Desperate Ads

Olivia Tam and Shawna Kwan wrote . . . . . . . . .

Property agents in Hong Kong are resorting to increasingly wry advertising slogans to attract potential buyers during the city’s worst housing slump in years.

“Born in the Wrong Time,” “No Tears Left to Cry,” “The Cut Is Deep, The Love Is Real” — these are just some of the catch lines being used on home listing ads, underscoring the desperation of agents and owners. On one level it’s worked: Social-media sites are now flooded with these over-the-top descriptions. But sellers are still finding it hard to offload properties.

Rising interest rates are weighing on a property market that has already been battered by a population exodus and Covid curbs. Hong Kong’s one-month rate, known as Hibor, has increased to the highest level since 2008 due to the city’s currency peg with the greenback. Expensive borrowing costs coupled with an economic contraction have made would-be buyers cautious.

The number of unsold new homes in Hong Kong increased to the highest in more than 15 years in the third quarter. Even the city’s powerful developers may need to offer discounts to sell vacant units, according to Bloomberg Intelligence.

Ada Chan, a 42-year-old HR manager, recently had to stomach a loss of HK$5.4 million ($690,000) to sell her three-bedroom apartment near the University of Hong Kong for HK$13.3 million. She said it was her biggest loss on property investments. Even with multiple price cuts, it took Chan more than a year and a half to find a buyer for the 500-square-foot (46-square-meter) flat.

Prices of used homes have declined 11% since the beginning of the year. Goldman Sachs Group Inc. is expecting values to plummet 30% through 2023 from last year’s levels.

“I’m not optimistic about the long-term development of Hong Kong,” said Chan. “This is no longer a place where investing in real estate can get you high returns.”

Source : Bloomberg

Chart: U.S. Single-Family Housing Permits and Starts Down in October 2022

Source : Bloomberg

China’s Property Investments Continue to Drop in October: NBS Data

China’s property sector investment fell at a faster pace in the first 10 months this year, dropping 8.8 percent year-on-year, compared with the 8-percent decline in the first nine months of 2022, data from National Bureau of Statistics (NBS) showed on Tuesday.

From January to October, the sales area of residential housing reached 1.1 billion square meters, down 22.3 percent from 2021, including a 25.5 percent drop in residential properties.

Sales of residential housing stood at 10.8 trillion yuan ($1.53 trillion), down 26.1 percent, and residential housing sales declined 28.2 percent, data from the NBS showed.

In the first 10 months of 2022, the new housing construction area totaled 1.03 billion square meters, a year-on-year drop of 37.8 percent; while housing completion area stood at 465.6 million square meters, falling 18.7 percent from the same period last year.

Fu Linghui, a spokesperson for the NBS, said on Tuesday that the real estate market has seen some positive changes, as the decline in sales of residential properties and the area of completed houses narrowed, after local governments implemented targeted policies to ensure housing delivery and promote the stable development of the sector.

However, the downward trend of the real estate market continues, Fu said.

“Data of land purchases and new construction starts remains weak, while the demand side showed hesitancy by home buyers,” Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, told the Global Times on Tuesday.

Fu noted that the government will actively encourage both housing purchase and renting as well as support housing needs under the principle of “housing is for living in, while not for speculation”, in a bid to promote the gradual stabilization and healthy development of the real estate sector.

Recently, the People’s Bank of China, the country’s central bank, and the China Banking and Insurance Regulatory Commission released a notice, which detailed 16 measures to ensure stable and healthy development of the country’s real estate sector.

Experts noted that with the promulgation of the 16 measures, property-related indicators are expected to improve in the last two months this year.

According to the notice, starting from November 1, property developers’ outstanding loans and trust borrowings due within six months can be extended for up to 12 months. In addition, trust companies are encouraged to offer reasonable funding support to developers.

Yan said that the policy will help improve liquidity for housing companies and also prevent the deterioration of development investment.

“The real estate industry is an important sector of the national economy and is closely related to people’s livelihood, so timely delivery of housing projects is still the focus of the policymakers,” Yan noted.

Source : Global Times

Chart: U.S. Homebuyer Confidence Collapsed in October 2022

Source : Bloomberg

Chart: YTD Change in U.S. 30-year Fixed Mortgage Rate by Year

See large image . . . . .

Source : Twitter

China Plans Property Rescue as Xi Surprises With Policy Shifts

China issued sweeping relaxation measures on property and Covid controls, the strongest signal yet that President Xi Jinping is now turning his attention on rescuing the economy.

Beijing issued its most extensive 16-point rescue package for the struggling real estate market, according to people familiar with the matter, marking a decisive effort to turn around an economy devastated by two years of Covid Zero curbs.

“It’s a meaningful easing,” said Larry Hu, head of China economics at Macquarie Group Ltd. “It seems that the room for policy change has widened on various fronts after the Party Congress, including for the two major headwinds to the Chinese economy: Covid Zero and property.”

The major policy shifts by Xi’s government will likely aid China’s growth outlook and add fuel to a market rally that sent a gauge of Chinese shares in Hong Kong up 17% in the past two weeks. It also ends a long period of policy paralysis before last month’s Communist Party congress when Xi jockeyed for a third term.

It’s a stark reversal from the gloom that descended over markets in late October, after Xi’s elevation of close allies to the highest rungs of power stoked concern that ideology would trump pragmatism for the most powerful Chinese leader since Mao Zedong. The Hang Seng China Enterprises Index has now erased losses suffered in the immediate wake of the party congress, swinging from one of the world’s worst-performing stock gauges to among the best.

The changes take place just before Xi is set to meet US President Joe Biden Monday on the sidelines of a Group of 20 summit, in the first in-person meeting between the two heads of state since the pandemic began. Treasury Secretary Janet Yellen will seek information on China’s Covid lockdown policies and the troubled property sector during a meeting with central bank Governor Yi Gang this week, according to senior Treasury Department officials.

Sweeping Measures

The People’s Bank of China and the China Banking and Insurance Regulatory Commission on Friday jointly issued a notice to financial institutions laying out plans to ensure the “stable and healthy development” of the property sector, said the people, asking not to be identified as the matter is private. Unlike previous piecemeal steps, the notice included 16 measures that range from addressing the liquidity crisis faced by developers to loosening down-payment requirements for homebuyers, the people said.

As part of the rescue plan, developers’ outstanding bank loans and trust borrowings due within the next six months can be extended for a year, while repayment on their bonds can also be extended or swapped through negotiations, the people added.

The central bank and the banking regulator didn’t immediately reply to requests for comment outside of working hours on Sunday.

Authorities on Friday also issued a set of measures to recalibrate their pandemic response, publicly outlining a 20-point playbook for officials aimed at reducing the economic and social impact of containing the virus.

The changes by no means signal the end of Covid Zero. A day after releasing the new parameters, officials were quick to clarify that Covid rules were being refined, not relaxed, and a strict attitude toward stamping out infections remains China’s guiding principle.

Global investors of Chinese property dollar bonds are still likely facing massive losses.

“The extreme pessimism in markets has finally led to a key policy change on the two biggest overhangs over the economy,” said Shen Meng, a director at Beijing-based investment bank Chanson & Co. “It’s still hard to say whether this is going to be a turning point for the economy though.”

Property Easing

Authorities have sought to defuse the property crisis with a raft of measures in the past few months, including cutting interest rates, urging major banks to extend 1 trillion yuan ($140 billion) of financing in the final months of the year, and offering special loans through policy banks to ensure property projects are delivered.

China also expanded a key financing support program designed for private firms including real estate companies to about 250 billion yuan last week, a move that could help developers sell more bonds and ease their liquidity woes.

One of the biggest policy changes in the latest notice is to allow a “temporary” easing of restrictions on bank lending to developers.

China began imposing caps on bank’s property lending in 2021, as authorities sought to tighten the reins on a bubble-prone industry and curb leverage at some of the nation’s largest developers. Banks not meeting the current restrictions will be given extra time to meet the requirement, said the people.

In addition, regulators encouraged lenders to negotiate with homebuyers on extending mortgage repayment, and emphasized that buyers’ credit scores will be protected. That may alleviate the risk of social unrest among homebuyers who have engaged in a widespread boycott on mortgage payments since July.

China’s $2.4 trillion new-home market remains fragile and property debt defaults have surged. Price declines in the existing-home market were the most extreme in almost eight years in September, according to the latest official data. At banks, the proportion of bad loans related to property has surged to 30%, according to Citigroup Inc. estimates.

Signs of easing property curbs and pandemic restrictions have led to a sharp rebound in China assets. A Bloomberg Intelligence gauge of Chinese developers’ stocks jumped a record 18% Friday, with Country Garden Holdings Co. surging 35%.

Still, the financial backstop is dwarfed by the looming debt maturities facing developers. China’s property sector has at least $292 billion of onshore and offshore borrowings coming due through the end of 2023. That includes $53.7 billion in borrowings this year, followed by $72.3 billion of maturities in the first quarter of next year.

“China developers are facing another peak in debt maturity next year, if regulators don’t make adjustments for property-related policies, developer liquidity will continue to deteriorate,” said Shen. “This will very likely trigger systemic financial risk.”

Source : BNN Bloomberg

Will We Ever . . . Live in City-sized Buildings?

Peter Ray Allison wrote . . . . . . . . .

The cities of science fiction are frequently portrayed as all-encompassing and self-contained structures, but how feasible is it to build a colossal city in a building?

Enclosed cities have become a narrative shorthand for futuristic settlements in science fiction. They are self-contained habitats, incorporating all essential infrastructure, including energy generation, food production, waste management and water.

The concept of an arcology – a portmanteau term combining architecture and ecology – was proposed by the architect Paolo Soleri in 1969, as he sought to combine construction with ecological philosophies. A year later, Soleri started work on Arcosanti, an experimental town in America, which demonstrated his concepts.

Soleri’s concepts inspired science fiction with a vision of futuristic cities: monolithic habitats where the population live and work without ever leaving the building. Cinematic examples include the massive high-rise buildings in Dredd (based on the comic book character Judge Dredd) and Skyscraper, although little detail is given on how they operate.

Science fiction, in turn, may have inspired some real-world variants. Saudi Arabia’s proposed The Line is pitched as a massive smart city which could house nine million people within a single 200m-wide (660ft) building, stretching 170km (105 miles) and 500m (1,650ft) high. The Line would be powered using solar energy and wind turbines, but would not be entirely self-sufficient, as food and other supplies would still be needed for the residents, and would have to be provided from external sources.

Some structures similar to arcologies already exist. For example, Antarctic research bases are relatively self-sufficient communities, mostly due to their remoteness. The surrounding environmental protections also mean that they need to be self-contained. The McMurdo Station provides housing for roughly 3,000 researchers and support staff. However, the station still requires significant supplies of food and fuel each year.

Other structures that are designed to be as self-contained and self-sufficient as possible include aircraft carriers, nuclear submarines and oil rigs. These have all of the living and work areas needed for the crew, albeit for short-term use. An aircraft carrier needs to be resupplied every few weeks, whilst a nuclear submarine can remain underwater for up to four months. However, neither of these are particularly pleasant places to live. Submarines in particular are cramped and smelly, sleeping quarters may be shared and the crew are prescribed vitamin D supplements due to lack of daylight.

But could we actually build an arcology? The size of such a structure would require massive foundations in order to support its weight. “You can build almost anything within reason,” says structural engineer Monika Anszperger of BSP Consulting. “The loadings would be massive, but nothing is unachievable. It will just cost more to build the foundations for it.”

The greater challenge caused by a building’s height is the effect of wind. Wind loading is of little concern for a typical house; but colossal towers, such as the Burj Khalifa in Dubai, need to consider the flow of wind and the resulting vortices. A vortex is the effect caused by wind hitting the surface of a building, creating an area of low pressure on the opposite side, then swirling around to fill it. It is this vortex action that causes tall buildings to sway during high winds.

The effects of swaying can range from drinks rippling to the structure collapsing. The Tacoma Narrows Bridge in Washington collapsed in 1940 due to strong winds inducing increasingly high frequency oscillations (rapid movements) on the bridge, to the point that the bridge tore itself to pieces. The effects of vortices can be mitigated through using a tuned mass damper (a device to reduce vibrations) to lessen the movement, as well as designing the structure to disrupt the wind flow.

“One way to mitigate vortexes is to change the shape of the building as it goes up,” says Adrian Smith, the architect of many large buildings, including Burj Khalifa. “If you don’t change the shape of the building, that vortex has an opportunity to build upon itself and create waves of movement. They synchronise with the structure of the building and cause progressive collapse.”

Therefore, rather than building an arcology as a shear-walled structure, as presented in Dredd, it is more likely that it would be built to disrupt windflow, such as by employing a stepped construction, like ancient MesoAmerican structures.

Another key challenge is energy generation. Renewable energy technologies, like solar panels and wind turbines, could be easily mounted on the exterior of an arcology, but are unlikely to provide a complete power solution on their own. As they would only be effective at certain times, back-up power generation and energy storage systems will be needed for when there is a shortfall.

Nuclear reactors are a possible alternative energy generation solution. Small modular reactors (SMRs), miniaturised factory-built versions of advanced nuclear reactors, are compact and efficient energy sources. SMRs claim some benefits over large reactors, in terms of enhanced safety and prevention of proliferation of nuclear materials. However, as with all fission reactors, the processing and storage of nuclear waste is a challenge. Alternatively, fusion reactors would be safer and provide cleaner forms of energy, however current designs are neither compact (one, Iter, is expected to weigh 23,000 tons) nor financially viable, as none have yet produced more energy than they use.

Food production also needs to be considered. Conventional farming would be impractical within a building. Vertical hydroponic farms could be used, which would also provide a natural form of air recycling. However, the necessary lighting would increase energy demand and space constraints could make it difficult to produce sufficient food.

The arcology portrayed in Paolo Bacigalupi’s novel Water Knife used a series of filtration ponds to recycle water, which is plausible. However, losses are inevitable in any recycling system. The International Space Station (ISS) recycles approximately 3.6 gallons (17.3 litres) of water every day, including urine and perspiration, but still requires regular supplies of fresh water every few months.

Not everyone sees a future for high-rise buildings. In 2021, China banned new buildings over 500m (1,650ft) tall and imposed severe restrictions on buildings over 250m (825ft).

Nonetheless, the Earth’s growing population needs to be accommodated. Continually expanding cities horizontally, through building on new land, is not sustainable indefinitely. This bolsters the argument for growing upwards, creating vertical cities. “Cities are expanding massively, going from one to 10 million,” says Antony Wood, director of Tall Buildings and Vertical Urbanism at the Illinois Institute of Technology and president of the Council on Tall Buildings and Urban Habitat. “They can’t go horizontal, because it’s unsustainable, for land consumption and the energy taken to build and operate the horizontal city. It’s going to go vertical.” (Read more about whether we are running out of space.)

Instead of independent tower blocks, buildings could become interconnected with land bridges, creating green spaces between them. However, building ever upwards with a network of land bridges risks putting the lower levels into shadow, making the higher levels ever more desirable, thus leading to a structured hierarchal system.

“I do see cities expanding vertically near areas of transit and I definitely see them expanding horizontally as well,” says Smith.

As the effects of climate change become ever more apparent, the materials cities are built from could change. Carbon emissions from the cement industry outweigh those from the aviation sector. One alternative construction material could be mass timber: an engineered product created from layered panels of wood that are bound together. “The amount of energy to produce mass timber is a fraction of what it would be to produce the same materials in steel or concrete,” says Wood. “While it’s producing itself, it’s sequestering carbon out of the atmosphere.”

Although building an arcology is theoretically possible, at least from a structural perspective, it would require inventive engineering to ensure the necessary energy generation, food production and waste reclamation systems are sustainable. Critics say it is difficult to see how arcologies could be made economically viable in the near future. There is also the argument that permanently living within an enclosed area would not be pleasant, although it is comforting to know it is possible, should an apocalyptic event make the outside world unhabitable.

“I would never say something cannot be built,” concludes Anszperger. “It can be built, but there needs to be a vision and a need for it.”

Source : BBC

Hong Kong Home Prices Plunge Most Since 2016 on Higher Rates

Shawna Kwan wrote . . . . . . . . .

The slump in Hong Kong’s property market is accelerating as borrowing costs rise.

The Centaline gauge of secondary home prices fell 2% in the week ending Oct. 30 from the previous week, the most since March 2016, according to data released on Friday. The drop took the index to its lowest level since December 2017.

Hong Kong property was among the biggest beneficiaries of low global interest rates, with the Centaline gauge surging more than 500% from its 2003 low to last year’s high. That’s now starting to reverse as borrowing costs jump, the economy shrinks and an exodus of residents adds to selling presssure. The secondary home price index has fallen 14% from its 2021 peak.

The city’s one-month borrowing cost, known has Hibor, has climbed to its highest level since 2008 due to Hong Kong’s currency peg with the greenback. More than 96% of mortgages are tied to Hibor, according to September data for new loans by the Hong Kong Monetary Authority.

New home sales may reach just 50% of annual completions this year, the lowest proportion in more than two decades, according to Bloomberg Intelligence. Developers may need to offer discounts in order to sell vacant units, particularly studio flats, where buyer demand is weak, BI said.

Goldman Sachs Group Inc. expects residential property values in the city to plummet 30% through 2023 from last year’s levels.

Source : BNN Bloomberg