China＇s State Media Cheerful on Real Estate Market Impasse
The break of capital chains has caused China＇s
real estate market to reach an impasse.
Now this phenomenon is spreading from small
and medium cities to big ones.
A project in Shanghai was forced to stop
and the property under construction in a busy neighborhood
was sealed up by courts.
Some professionals are saying that future financing issues
and sluggish sales will put small and medium real estate
companies into a more challenging situation.
Meanwhile, the risks faced by those financial structures that
are associated with the real estate market are escalating too.
Nonetheless, the party＇s state run newspaper published
an article saying that the housing market and sale price slump
won＇t impact China＇s economy too much.
State media say that, to the contrary,
it will help transform China＇s economy to a high-quality growth.
There are so many extra-large wholesale supermarkets
in Caoan Business Circle, Jiading District, Shanghai city.
Trucks carrying goods come one after the other.
Yet, work on the “Yue He International Square” project,
located in the busy area, was suspended a month ago
because the developer＇s funding chain broke.
This project will be delayed for another half a year
and quite a few financial structures were trapped in the process.
As reported by China Securities Journal,
＂Yue He International Square” was officially seized
as collateral by Shanghai Minhang District People＇s Court,
and in turn, Xuhui District People＇s Court.
The housing market has been bleak across China.
The overseas edition of party mouthpiece People＇s Daily
published an article on July 2, saying that the bleak housing
market has very limited impact on China＇s economy.
It says home prices have gotten into the phase of adjustment,
which is a rational regression after 10 years of high growth,
and the changes in the housing market will help transform
China＇s economic structure to one of high-quality growth.
Mr. Deng, Chinese economist: “The party is making
an empty show of strength and trying to confuse the public.
Now we clearly see that if China＇s economy falls apart,
the hardest hit victims won＇t be developers or ordinary people.
If China＇s economy collapses, it will bring about social chaos,
which the party is unwilling to see.”
Niu Dao, China financial commentator: “China is a dictatorship.
When the real estate market is in trouble, the Central Bank
and the government will do anything to maintain housing prices.
They never follow the market.
When people realize the government is trying all means
to protect the ‘housing bubble’, they will dive into the bubble too.”
Reports say the main reason “Yu He International Square”
was sealed up is the debt entanglement
between “Yue He Properties” and banks.
The Minhang branch of Shanghai Pudong Development Bank
is one of the mortgagees of Yue He International Square
with $39 million in debt secured.
Meanwhile, China Construction Bank and Ningbo Bank also
have many forms of a debtor-creditor relationship with Yue He.
＂Tian Yi Zhi Xing, a real estate project in Hangzhou,
should have been completed by the end of last year.
However, the developer defaulted on their loan,
so the project was suspended last June.
This March, Xing Run Properties, the biggest developer
in Fenghua, Ningbo, came across funding problems
and was $564 million in debt.
Guang Yao Properties, one of China＇s top 100
real estate companies, almost went bankrupt,
which has an impact on many banks and trust firms.
Wang Jianguo, doctoral supervisor from Guanghua School
of Management, Peking University: “It is the government
that fears most about the collapse of the real estate market.
Once the real estate market falls apart,
there are risks that some banks might go bankrupt.
If the government wants to save the banks,
more money needs to be printed, which will cause inflation.
If local governments aren＇t sell the land off,
they can＇t operate normally either.
With no income from land sales,
the central government will have to lend money
to local governments to maintain local stability.
Again, it＇s malignant inflation.＂
In China, since the real estate market is running into more
and more risks, real estate trusts have become endangered.
Suzhou-based Rong Chen Real Estate Development
issued a trust expected to have matured in August last year.
However, until this May, the trust hadn＇t received
the full principal and interest payments.
In November 2013, Xinhua Trust issued a loan funding
trust plan for Shangdong-based Torch Investment.
Because of a breach of contract,
it＇s now in judicial proceedings.
During the same month, Sichuan Trust sued its trust plan
partner because of a loan dispute with the financiers.
This year Xinhua Trust was trapped into a loan dispute
with Shanghai-based Gao Yuan Properties.
Wu Kuang Trust sued Shanghai-based Rong Teng Properties
to recover a debt of $64 million.
Quite often, developers run will away from their debts.
Last year, a developer in Tangshan disappeared,
and left behind $209 million in debt.
A lot of investors have been so desperate
that they＇ve committed suicide by taking poison.
This April, one developer disappeared before the property
under construction was completed in Wuxi city, Jiangsu.
Hundreds of home buyers lost out.
Interview & Edit/liu Hui Post-Production/Shu Chan