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Category Archives: Real Estate

China’s Central Bank Urges Banks to Maintain Stable Property Financing

China’s financial regulators have asked banks to stabilize lending to property developers and construction firms, the latest effort by policymakers to turn around the real-estate crisis and bolster economic growth.

Authorities support the “reasonable” extension of existing real estate development loans and trust loans, according to a statement posted on the People’s Bank of China’s website after a Monday meeting with commercial banks. The gathering was jointly organized by the central bank and the banking regulator.

The regulators reiterated that the “reasonable” demand of home buyers for mortgages will be met. A key financing support program must be “used well” to help private property developers sell bonds, while legal protection and regulatory policy support for special loans aimed at ensuring housing-project delivery will be improved to promote the stable and healthy development of the market, the statement said.

The call is the latest in a slew of actions taken by the government to try to stop the more-than-yearlong slump in the real estate market that’s dragging down China’s economic growth and undermining local-government income. Bond defaults by cash-strapped developers have sent shockwaves across the financial markets, while delays in property-project delivery have driven homebuyers to stop mortgage payments in protest.

In a possible sign of willingness to shift away from the previous tightening stance on the real estate sector, PBOC Governor Yi Gang emphasized Monday that the industry is critical for the economy. “The property sector is linked to many upstream and downstream industries, and its healthy operating cycle is significant for the economy,” Yi said at a financial forum in Beijing.

Meanwhile, the PBOC is planning to provide 200 billion yuan ($28 billion) in interest-free relending loans to commercial banks through the end of March, 2023, in a move to support them to provide matching funds for stalled property projects, China Business News reported, citing the central bank’s meeting with commercial banks on Monday.

Adding to the positive messages sent by the authorities, Yi Huiman, chairman of the China Securities Regulatory Commission, said at the same event that his agency will support property developers’ reasonable bond financing needs and support mergers and acquisitions in the sector.

Support Package

The main points from Monday’s meeting are similar to a 16-point package authorities rolled out earlier this month to help embattled developers, who have at least $292 billion of onshore and offshore borrowing maturing through the end of next year. The push followed regulators’ orders for banks to dole out hundreds of billions of yuan in financing for developers in the remainder of this year.

The remarks by Yi Gang are “a rare recognition of the property sector’s irreplaceable significance” by a top financial official, according to Lu Ting, chief China economist at Nomura Holdings Inc. in Hong Kong. The government’s recent supportive policies “demonstrate that Beijing is willing to reverse most of its financial-tightening measures,” he added.

At the meeting on Monday, the PBOC and the China Banking and Insurance Regulatory Commission also urged banks to expand medium- and long-term lending to help policy bank financing drive effective investment. Credit demand from manufacturers and service providers should be supported via the special relending loan program for equipment upgrading, the regulators added.

Yi said at the forum that the outstanding size of the relending programs targeting sectors such as technology innovation, transport and logistics and equipment upgrading is about 3 trillion yuan ($419 billion), adding they will be ended after policy goals are reached.

Stocks Down

A Bloomberg gauge of Chinese developers’ stocks ended the day 2% lower, after sinking as much as 4% in the morning. The Shanghai Stock Exchange Property Index closed 0.5% lower after earlier being down 2.7%.

PBOC Deputy Governor Pan Gongsheng and CBIRC Vice Chairman Xiao Yuanqi made comments at the Monday meeting, which was attended by heads of institutions including the major state-owned banks, joint stock lenders, and the branches of the central bank and the banking regulator, according to the statement.

Source : BNN Bloomberg

China Can Learn from the Bursting of Japan’s Real Estate Bubble

Alicia Garcia-Herrero wrote . . . . . . . . .

As China enters its second year of real estate blues, much has been written about China Evergrande Group’s default potentially marking the country’s Lehman moment.

But in reality, China’s property troubles have little parallel with the U.S. subprime crisis in which a lack of domestic savings led American households to overborrow to purchase homes, fueling a market bubble.

In China’s case, its households had an excess of savings and a limited range of investment choices, due in part to the country’s capital controls. This resulted in captive demand for housing, which in turn led to overproduction of housing in all but the country’s biggest cities.

Japan’s experience in the 1980s and 1990s, when its macroeconomic imbalances resembled those of China today, is much more comparable.

Then, excess savings, reflected in a protracted current account surplus, fed asset bubbles, especially in terms of land prices. Aggressive financial deregulation, lax monetary policy and domestic investors’ bias toward the local market added to the inflation of Japan’s real estate bubble, as did the rapid appreciation of the yen after the 1985 Plaza Accord to address currency imbalances with the U.S. and key European economies.

When the property bubble burst, Japan’s response was too slow and piecemeal, which only worsened the economic impact. Regulators showed excess patience with domestic banks, which allowed their problems to worsen. The lack of a big bang to tackle their worsening balance sheets increased the crisis’ eventual cost, as the banks became overly conservative on taking on new risks, causing credit growth to stagnate.

As in Japan, China’s property bubble was partly the result of financial liberalization which enabled property developers to rely on the shadow banking sector to raise funds with less scrutiny than they would have faced from banks and other regulated lenders.

The key difference between the cases is that China was able to maintain a much higher economic growth rate than Japan as air started to come out of its bubble, giving Beijing greater margin for error.

But China’s continued lockdown-heavy approach to controlling COVID-19, as well as its aging population and falling returns on assets, point to slower growth rates ahead. Its room to deal with its real estate woes at its own pace will depend not only on the speed at which economic growth decelerates but also on how much more fiscal space remains.

The case of Japan shows that the deflationary impact of the bursting of a real estate bubble can quickly lower economic growth and also worsen a country’s fiscal position.

Between 1980 and 1991, Japanese economic growth averaged 4.3% while public debt came to just 66% of gross domestic product. But since the country’s bubble burst in 1992, growth has averaged just 0.7% and last year, public debt reached 263% of GDP.

While China’s growth still remains higher than Japan’s at this stage of their bubbles’ deflation, Beijing actually has less fiscal room as its public debt is relatively higher. As of 2021, its debt reached 83% of GDP but the figure would be much higher if the borrowings of state-owned enterprises were included.

The fact that consumer price inflation in China today is lower than in Japan, let alone the rest of the world, points to the rapid deflationary impact of the Chinese property market and will further impinge on debt sustainability.

Another important point to consider is that government revenues in both Japan and China depended heavily on land sales before their bubbles burst, particularly at the local level. The popping of Japan’s bubble worsened its fiscal position and the same is happening in China today.

Slower growth and a weakening fiscal position make it hard for China, as before with Japan, to continue to muddle along in addressing its real estate market troubles as cleanup costs are bound to increase over time. Solvent real estate developers are also targeted by households and investors. In addition, as banks are asked to continue to support developers, the line between solvent and insolvent lenders will become thinner, adding to the costs of restructuring.

In sum, while differences exist, Japan is probably the best example for China to watch when considering policy options for handling its real estate crisis. In fact, the underlying causes of the crises in the two countries, including macroeconomic imbalances and excessive financial liberalization, are similar.

Perhaps the most important lessons to draw from Japan’s handling of the demise of its real estate bubble are that time is of the essence and that slow intervention will only increase the economic costs of the crisis.

Japan’s case also shows that policymakers should not rely too much on economic growth or fiscal room as a cushion for real estate woes since both will be hammered down by plummeting land and real estate prices.

Source : Nikkei Asia

China Households Could Cut Property Assets in $18 Trillion Shift

Lisa Du wrote . . . . . . . . .

China’s households are expected to shift 127 trillion yuan ($18.1 trillion) into financial products over the next nine years, an opportunity ripe for financial institutions as the country’s property sector sours, brokerage CLSA Ltd. said.

The share of Chinese household assets allocated to property will fall to 26% by 2030 from 37% in 2021, according to estimates from Hans Fan, the head of China financial research at CLSA. In contrast, the share of money allocated to investments such as mutual funds, wealth management products and insurance will grow to 21% from 13% in the same period.

In the coming years, “a huge pie of new money will go toward professional managed products. What this means for financial institutions is that the household balance sheet is a goldmine,” Fan said Thursday at the CITIC CLSA Flagship Investors’ Forum.

The shift would signal a sea change from decades of Chinese consumers putting their money into real estate as the surest way to grow their wealth. It would underscore both the longer-term impact of China’s housing downturn and the potential that lies in China’s nascent financial sector — a market estimated to be worth around $57 trillion.

Wealth Management

Revenue from household assets at financial institutions could more than double to 2.1 trillion yuan by 2030, Fan said. Mutual funds and fintech companies are expected to grow their market share as more money shifts to financial products.

“In the past 10 years, financial institutions have mainly explored revenue from the household liabilities side with lending to them,” he said. “In the future, revenue from the household asset side — meaning providing wealth management services, earning fees — will become a new driver for financial institutions.”

In the past year, China’s property sector, which had been a red-hot growth engine, has been beset by challenges as highly indebted developers paused construction projects and the country’s strict Covid Zero policy dented economic activity.

China’s new-home sale prices have fallen for 12 months straight, most recently dipping 0.29% in August from July. Tensions are high over a simmering mortgage boycott in recent months by homebuyers who are waiting for cash-strapped developers to complete delayed projects.

Source : BNN Bloomberg

Hong Kong Grade A Office Vacancy Rates Continue to Rise

Source : CBRE

核心區甲廈空置率8.42% 創歷來新高




Source : 星島日報

Nearly 12 million square feet of Vacant Office Space Now Spread Across San Francisco

Source : SocketSite

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76% of American CEOs say they may shrink office space . . . . .

New York Real Estate Sales Sink to Multi-year Low

Source : Real Estate Board of New York