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Thread dedicated to covering the property bubble of China.
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Official China Bubble Thread
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China Developers Resisting Cheap Housing Push
APRIL 8, 2011
By ESTHER FUNG
SHANGHAI—China's pledge to hugely increase public housing is likely to face problems from property developers and local governments, real-estate executives and analysts say, testing the central government's ability to offer more affordable housing to its people.
View Full Image
chousing0407
Qilai Shen/European Pressphoto Agency
A young boys viewing a miniature real estate model as potential buyers and real estate agents attend a housing fair in Shanghai.
As real-estate prices continue to surge and resentment among low-income household rises, the central government last month detailed its plans to increase this year's target for new public-housing construction 10 million units from last year's 5.8 million. In December, average urban property prices rose 6.4% compared with the year earlier, and government officials have since stopped releasing nationwide figures.
The price tag: about 1.3 trillion Chinese yuan, or about $200 billion. The housing ministry says the central and local governments will provide 500 billion yuan to the effort, with the remaining 800 billion yuan coming from companies and institutions.
That has led to griping from property developers. The authorities already have taken a series of steps that rein in home-price appreciation, from interest-rate increases to administrative measures such as limits on home purchases. Focusing on lower-income housing could further pressure profit margins.
"It's wrong to push the responsibility of building and financing the public housing project to the private market players," said Ren Zhiqiang, president of Beijing-based residential developer Huayuan Group. "Low rental housing is the responsibility of the government."
Local governments, which rely on land sales for much of their revenue, will also feel the strain and may be loath to do anything to reduce that flow.
China's efforts could ripple around global markets. China counts on strong economic growth to keep its population mollified, but rising housing prices could upset that relationship. That could push China to take further steps, such as more interest-rate increases or curbs on investing, which could impact the world's fastest-growing major economy and the engine of much of its growth.
Premier Wen Jiabao got personally involved in February, calling on property firms to be socially responsible by making housing more affordable. "Morality should flow in the blood of property developers," Mr. Wen wrote on an online forum.
Property is a major engine of China's growth, especially since it spurs activity in other areas like construction and steel. But the sector is under pressure. Government limits on home purchases have caused sales volume to drop since February, and with banks reining in credit, developers are being forced to rethink sales strategies, offer discounts and consider diversifying into other types of real estate.
The limits also impact local governments, which have traditionally focused on maximizing revenue from land sales.
Some insurance firms, pension funds and state-backed funds have voiced financial support for these projects—though many have raised questions about whether the central government will provide enough financial support or help them acquire affordable land.
Some bigger developers, like China Vanke Co., say they're ready to invest but want to at least break even. "Vanke is willing to build public housing—just earning one yuan will do," Vanke President Yu Liang said last month.
But he added—quoting Mr. Wen—that if the project loses money, "we can't face our shareholders, and if it is profitable, then we won't have 'morality in our blood.' So if the government gives us land and money, we can help, and earning one yuan will do."
That compared with private residential margins of 30% to 40%, according to CIMB-GK Securities analyst Johnson Hu.
"Perhaps some property developers can get better terms from the government, like cheaper land, tax incentives. But the profit margins aren't attractive at all," Mr. Hu said. "It's hard to be enthusiastic about such projects."
Developers may have little choice but to participate, as the government has said 70% of residential land supply should be allocated for these projects, drastically reducing land reserves available for private housing. Also, given rising curbs in other segments of the market, companies that don't participate may be missing out on one of the few remaining easy growth opportunities.
"Property developers can say that they don't want to participate in public housing because of the low margins," said Shan Weibao, chairman of RK Properties Holding Ltd, a subsidiary of Road King Infrastructure Ltd. "But you are saying no to approximately half of the market, are you willing to limit yourself to a smaller market share?"
He added that his company is also looking at other types of property development to diversify away from main residential market, and is looking into developing housing for the elderly—an area where China severely trails other countries even as its population ages.
Developers and local governments may sign up for the public projects but wander away later, said Credit Suisse analyst Jinsong Du.
"Construction of 10 million public homes could start this year, but they can later say, 'We don't have the money so we can't finish it,'" Mr. Du said.
To strong-arm developers, the government may extend its curbs on the private property market or impose more punitive measures that could bring about a prolonged period of dwindling sales until enough public homes are built, analysts said.
http://online.wsj.com/article/SB10001424052748704101604576248590138418326.html
APRIL 8, 2011
By ESTHER FUNG
SHANGHAI—China's pledge to hugely increase public housing is likely to face problems from property developers and local governments, real-estate executives and analysts say, testing the central government's ability to offer more affordable housing to its people.
View Full Image
chousing0407
Qilai Shen/European Pressphoto Agency
A young boys viewing a miniature real estate model as potential buyers and real estate agents attend a housing fair in Shanghai.
As real-estate prices continue to surge and resentment among low-income household rises, the central government last month detailed its plans to increase this year's target for new public-housing construction 10 million units from last year's 5.8 million. In December, average urban property prices rose 6.4% compared with the year earlier, and government officials have since stopped releasing nationwide figures.
The price tag: about 1.3 trillion Chinese yuan, or about $200 billion. The housing ministry says the central and local governments will provide 500 billion yuan to the effort, with the remaining 800 billion yuan coming from companies and institutions.
That has led to griping from property developers. The authorities already have taken a series of steps that rein in home-price appreciation, from interest-rate increases to administrative measures such as limits on home purchases. Focusing on lower-income housing could further pressure profit margins.
"It's wrong to push the responsibility of building and financing the public housing project to the private market players," said Ren Zhiqiang, president of Beijing-based residential developer Huayuan Group. "Low rental housing is the responsibility of the government."
Local governments, which rely on land sales for much of their revenue, will also feel the strain and may be loath to do anything to reduce that flow.
China's efforts could ripple around global markets. China counts on strong economic growth to keep its population mollified, but rising housing prices could upset that relationship. That could push China to take further steps, such as more interest-rate increases or curbs on investing, which could impact the world's fastest-growing major economy and the engine of much of its growth.
Premier Wen Jiabao got personally involved in February, calling on property firms to be socially responsible by making housing more affordable. "Morality should flow in the blood of property developers," Mr. Wen wrote on an online forum.
Property is a major engine of China's growth, especially since it spurs activity in other areas like construction and steel. But the sector is under pressure. Government limits on home purchases have caused sales volume to drop since February, and with banks reining in credit, developers are being forced to rethink sales strategies, offer discounts and consider diversifying into other types of real estate.
The limits also impact local governments, which have traditionally focused on maximizing revenue from land sales.
Some insurance firms, pension funds and state-backed funds have voiced financial support for these projects—though many have raised questions about whether the central government will provide enough financial support or help them acquire affordable land.
Some bigger developers, like China Vanke Co., say they're ready to invest but want to at least break even. "Vanke is willing to build public housing—just earning one yuan will do," Vanke President Yu Liang said last month.
But he added—quoting Mr. Wen—that if the project loses money, "we can't face our shareholders, and if it is profitable, then we won't have 'morality in our blood.' So if the government gives us land and money, we can help, and earning one yuan will do."
That compared with private residential margins of 30% to 40%, according to CIMB-GK Securities analyst Johnson Hu.
"Perhaps some property developers can get better terms from the government, like cheaper land, tax incentives. But the profit margins aren't attractive at all," Mr. Hu said. "It's hard to be enthusiastic about such projects."
Developers may have little choice but to participate, as the government has said 70% of residential land supply should be allocated for these projects, drastically reducing land reserves available for private housing. Also, given rising curbs in other segments of the market, companies that don't participate may be missing out on one of the few remaining easy growth opportunities.
"Property developers can say that they don't want to participate in public housing because of the low margins," said Shan Weibao, chairman of RK Properties Holding Ltd, a subsidiary of Road King Infrastructure Ltd. "But you are saying no to approximately half of the market, are you willing to limit yourself to a smaller market share?"
He added that his company is also looking at other types of property development to diversify away from main residential market, and is looking into developing housing for the elderly—an area where China severely trails other countries even as its population ages.
Developers and local governments may sign up for the public projects but wander away later, said Credit Suisse analyst Jinsong Du.
"Construction of 10 million public homes could start this year, but they can later say, 'We don't have the money so we can't finish it,'" Mr. Du said.
To strong-arm developers, the government may extend its curbs on the private property market or impose more punitive measures that could bring about a prolonged period of dwindling sales until enough public homes are built, analysts said.
http://online.wsj.com/article/SB10001424052748704101604576248590138418326.html
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China's coming collapse
The Middle Kingdom's prosperity is an illusion. And when China finally falls, we'll all feel the pain.
http://www.canadianbusiness.com/managing/strategy/article.jsp?content=20110314_10024_10024&page=1
The Middle Kingdom's prosperity is an illusion. And when China finally falls, we'll all feel the pain.
http://www.canadianbusiness.com/managing/strategy/article.jsp?content=20110314_10024_10024&page=1
