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China's Housing Bubble Desperation In Six Words: "Buy One Floor, Get One Free"

Tyler Durden's picture




 

Having gone from the sublime (zero-money-down mortgages for Chinese homes) to the ridiculous (when China's largst property developer says "the period in which everybody makes money out of property is gone,") the latest desperate act of a dying Chinese property bubble is stunning. As WSJ reports, Season Joy City (a remote suburb of Beijing) offers not only a party bag of bonuses to lure potential buyers; but the development's big selling point is "buy one floor, get one free." The government's reluctance to bail the nation out may soon be tested as Barclays notes "this downturn is more serious than in 2008."

 

As we ironically noted previously -  "please take this home: it's free."

But the biggest draw is a “zero down payment” scheme, available for a two-and-a-half-week period only. At first sight this seems to go against government regulations, brought in to keep house prices under control, which stipulate a minimum 30% down payment on ordinary residential purchases.

 

Zero down payment schemes have popped up around China as developers go to ever greater lengths to shift apartments, but Season Joy City may have the distinction of being the first to try it in Beijing, said Tang Li, an analyst at North Square Blue Oak, an investment bank.

 

“They will help homebuyers to apply for this consumer loan that they can use as a down payment,” said Mr. Tang. “It’s very difficult to judge whether this is in line with the regulations or not. So far there’s been no punishment from the government.”

And then there is the really desperate...

Season Joy City offers a party bag of bonuses to lure potential buyers. The development’s original selling point was “buy one floor, get one free.”

 

When China Real Time visited last week, helpful sales assistants also offered to throw in kitchen fittings and four air conditioning units for nothing.

As developers are desperate to avoid cutting prices..

All this is to avoid cutting prices, which developers could fear could tank public faith in the housing market and ultimately pummel sales further. Instead, they resort to ingenious “promotions,” throwing in freebies worth thousands of dollars and even whole free rooms rather than slashing prices outright.

And it is not likley to end well...

It’s very clear that developers are in a hurry to sell,” said Rosealea Yao, a Beijing-based analyst at research firm Gavekal Dragonomics. “Developers in the suburbs always see the biggest decline in sales and prices [during a downturn].”

If the property sector is in deep trouble, it’s going to affect a whole lot of industries and that will drag down the entire economy,” said Liu Qinglong, assistant sales manager at the development. “I think in the future the government will set up a long-term mechanism to ensure steady growth of property market.”

Barclays is less sanguine than your average Wall Street silver-lining hunter...

"The downturn this time is more serious compared to 2008 and 2011," said Barclays Bank analyst Alvin Wong.

 

...

 

"The very fact that the PBOC had to provide that window guidance means there is a problem," said Xiang Songzuo, chief economist at Agricultural Bank of China Ltd., using industry jargon for central bank jawboning. "Now, what you're hearing from banks' local branches is that 'we just don't think the property is worth that much money anymore.'"

 

...

 

"I don't believe that the local governments will be allowed to reverse the home purchase restrictions."

As WSJ concludes, with buyers standing on the sidelines and some developers starting to sound desperate, the government’s ability to support the market may soon be put to the test.

What can possibly go wrong?

 

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Thu, 05/29/2014 - 22:06 | 4808347 Millivanilli
Millivanilli's picture

Stawks hit new highs on US contraction.  All is well according to cnbc.

Thu, 05/29/2014 - 22:33 | 4808414 Chief Wonder Bread
Chief Wonder Bread's picture

That picture shows how tall buildings really fall down.

Thu, 05/29/2014 - 22:47 | 4808458 Mr Pink
Mr Pink's picture

Must have had a couple of fires burning on floors 24 and 37

Thu, 05/29/2014 - 23:06 | 4808480 G-R-U-N-T
G-R-U-N-T's picture

LOl, that wouldn't be building 7, now would it Pinky?

Here, have a look: http://www.youtube.com/watch?v=Mamvq7LWqRU

We don't need no stinkn' demolition crews!!!!

Thu, 05/29/2014 - 22:50 | 4808464 Mr Pink
Mr Pink's picture

I still feel bad for all those demolition companies that went out of business after 9/11. As soon as the world figured out fires brought down steel and concrete structures so easily, they weren't needed anymore

Thu, 05/29/2014 - 23:31 | 4808559 Luckhasit
Luckhasit's picture

What i find hilarous and quite sad is that the dude that designed them said they were made to withstand a 747 running into it.  On the record! I guess his calculations didnt involve jet fuel.

Thu, 05/29/2014 - 23:45 | 4808576 G-R-U-N-T
G-R-U-N-T's picture

"I guess his calculations didnt involve jet fuel."

Indeed, perhaps jet fuel wasn't even on his mind, since maximum jet fuel burn temperature is 825 Celsius.....Temperature needed to melt structural steel is 1510 Celsius.

Here are some more in depth calculations...

http://911research.wtc7.net/mirrors/guardian2/wtc/how-hot.htm

Fri, 05/30/2014 - 00:09 | 4808603 Mr Pink
Mr Pink's picture

Jet fuel...the magical kerosene that burns off in 30 seconds after exploding but still gets hot enough to create pools of molten steel

Thu, 05/29/2014 - 22:50 | 4808467 The man with po...
The man with pointy horns's picture

Yeah Chief Wonder Bread. Without being pulverised, or blowing up during collapse or leaving behind a massive pile of rubble oozing with molten steel.

Thu, 05/29/2014 - 23:13 | 4808519 Mr Pink
Mr Pink's picture

Looks like we have a "9/11 Liar" giving down votes. Silly person

Thu, 05/29/2014 - 23:15 | 4808525 The man with po...
The man with pointy horns's picture

They hate us for our freedom.

Fri, 05/30/2014 - 02:13 | 4808735 Rakshas
Rakshas's picture

.......nobody likes a critical thinker........ it reminds them how dumb the flock really is......

Thu, 05/29/2014 - 23:34 | 4808565 Chief Wonder Bread
Chief Wonder Bread's picture

You know, asbestos seems to have a mysterious power to change the way steel and reinforced concrete behaves under adversity.

Fri, 05/30/2014 - 00:11 | 4808604 Mr Pink
Mr Pink's picture

Actually the mysterious power it has is its cost of removal

Fri, 05/30/2014 - 01:40 | 4808709 Chief Wonder Bread
Chief Wonder Bread's picture

Spritzed with burning jet fuel, it causes mega-skyscrapers of reinforced concrete and steel to fall straight down into their own footprints making its selective removal impossible.

Thu, 05/29/2014 - 23:24 | 4808541 Jumbotron
Jumbotron's picture

Wake me up before you bogo.

Thu, 05/29/2014 - 22:07 | 4808351 yrbmegr
yrbmegr's picture

Just give it away.

Thu, 05/29/2014 - 22:08 | 4808355 nmewn
nmewn's picture

By offering to "throw in kitchen fittings and four air conditioning units for nothing" you're talkin stuffing window units in it and an actual kitchen sink right? ;-)

Thu, 05/29/2014 - 22:22 | 4808389 Number 156
Number 156's picture

It will be interesting to see how this translates over to the american real estate market.

Will the Chineese owners panic and sell off their commercial, rental and single family homes held in the USA?

Thu, 05/29/2014 - 22:34 | 4808415 macholatte
macholatte's picture

Will the Chineese owners panic and sell off their commercial, rental and single family homes held in the USA?

 

and elsewhere.... London, Paris, etc.

 

My guess... China is a shithole they run away from. Last to go will be real estate held in "western" countries.

Fri, 05/30/2014 - 00:13 | 4808613 old naughty
old naughty's picture

True.

...except when the party line (alias banks) calling money back.

No one can run away.

Fri, 05/30/2014 - 02:04 | 4808728 Son of Loki
Son of Loki's picture

I read on some Chinese web site written in English that housing registration begins in June for many cities. This is not good news for those local Gubmint officials who bought 20-30 apartments worth $100k to $2 million a piece on their 'official' $600/month gubmint salary so they are dumping them pronto before the registation process reveals them as the owner. The article did not mention what effect the registration will have on those who own overseas [secret] houses.

But, as mentioned above, this could be an interesting development for RE in Cali and to a lesser extent other areas.

Definitely worth watching. How about the ripple effect on Australia where the median house price is over $653,000!?

Fri, 05/30/2014 - 08:19 | 4808966 chapaev's ghost
chapaev's ghost's picture

I'd really like to see Russia evolve into a credible force to counter a unipolar American "exceptionalism" (I am Chapaev's Ghost after all).

But what good is a holy grail gas deal with China if the Chinese are fucking broke? It's like  having a super-sized Ukraine in the east. Why surround Russia with NATO when she is already surrounded by broke-ass insolvent former Communist states who have brillaintly managed to cherry pick not only the worst traits of capitalism, but to retain the worst traits of socialism?

I remember the dancing sign people from 2007, who danced with "Open House" signs on the streetcorners of the surreal exurbs of Phoenix. This Chinese bubble reminds me of those days, when everyone was trying to find  and bilk the last greater fool.

Does a Rothschild sit on the board of the PBOC? Is the Pope Catholic? I have always said that the dollar, far from collapsing, will be the One World Currency. If the Rothschilds and their evil droogies and malign minions can pull off a China collapse, then the last two threats to the dollar are toast, namely, the ruble and the renminbi.

Euro- toast.

Yen, toast.

Dreams of a gold pan African dinar, toast.

But a shekel-backed Rothschild dollar- now we're talkin'!!!!

 

Thu, 05/29/2014 - 22:27 | 4808402 LouRukeyser
LouRukeyser's picture

Maybe we could ask Alvin the Analyst what possibly could go wong.

Thu, 05/29/2014 - 22:29 | 4808405 Crawdaddy
Crawdaddy's picture

Time for the picture of the guy's house in the middle of the road, the one who refused to sell out.

http://twistedsifter.com/2012/11/china-builds-highway-around-house/

Of course he was forced to move. And now he is forced to borrow.

Thu, 05/29/2014 - 23:26 | 4808547 G-R-U-N-T
G-R-U-N-T's picture

LOL...Absolutely Classic, Crawdaddy! This thread is cracking me up!!

Fri, 05/30/2014 - 00:23 | 4808625 Miffed Microbio...
Miffed Microbiologist's picture

Thanks crawdaddy! I needed the laugh. I can't believe that could happen in china. In the USA he would have been shot at a domestic terrorist and his house bulldozed without a second thought.

Miffed;-)

Thu, 05/29/2014 - 22:39 | 4808423 Dr Benway
Dr Benway's picture

The idea that there could ever be such a thing as a soft landing from a debt-fuelled asset bubble is bizarre. It's in the very nature of bubbles to either expand or pop suddenly, no middle road possible.

The reason for this is that the *current* price of a bubble asset needs future price rises in order to be justified. For the current price of Chinese housing to be justified, there must be future rises, and if this expectation of future gains disappears the price of housing collapses.

I find it unbelievable that this simple truth is willfully ignored by central banksters

Thu, 05/29/2014 - 22:40 | 4808431 Mentaliusanything
Mentaliusanything's picture
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

 

Thu, 05/29/2014 - 23:00 | 4808495 forwardho
forwardho's picture

In China, TPTB live in fear of the masses. Now they find themselves trapped by reality. They convinced an entire generation to invest their life savings in realestate, with the implict guarantee of the govt that their investment will increase.

They are trapped, much like our federal reserve and their "fake it till you make it" scheme. The housing prices cannot be allowed to drop or literally their heads will roll.

The US is borrowing trillions to pay for entitlements, if they loose that ability they loose control. Thus we have the ACA and The NDAA put in place to control the masses when they realize they have been lied to and will be upset when their children die of starvation and their parents die for lack of healthcare.

Sweet dreams brothers, we've been living one for a long time, though I fear we are about to wake-up to the nightmare that is reality.

Fri, 05/30/2014 - 00:50 | 4808660 monkeyboy
monkeyboy's picture

So, umm, what about that Australian RE bubble? Or no bubble to see here, as we keep getting reminded by TPTB.

Fri, 05/30/2014 - 01:29 | 4808699 Dr Benway
Dr Benway's picture

Yeah well the grotesque Aussie housing bubble is tied to the Chinese one in several ways. Money from the Chinese credit bubble flows directly into Oz in the form of Chinese purchasing property here. Indirectly, the Oz economy is dependent on Chinese economic growth, that is dependent on the Chinese debt bubble.

And since Australian stocks are dependent on the Australian credit bubble, virtually all of Australian granny investors' saved wealth is dependent on the Chinese credit bubble, the biggest one in human history. The people tasked to warn the grannies about this, and to protect the grannies interests, have been bribed to look the other way.

Thu, 05/29/2014 - 22:39 | 4808424 db51
db51's picture

A free floor?  W T F?   What are they talking about, bi-levels?   lmao.   They're making 30 year loans on mobile homes down here in So Illinois.   What could possibly go wrong with that.  Next step will be a bonus bag of freebies such as a Free Neck Tattoo.....or maybe one of those snake crawling out of your ass ones for the lady of the house...probably a single mother EBT Queen.

 

4 Window unit A/C.   Dear God....what kind of shit are they building over there.   Haven't the stupid fuckers hear of Central Air?    Oh well, I was watching some YouTube links in another thread of a bunch of Chinese shitting on the streets like dogs....so a window unit might be a real deal maker.   just saying.   Ya think they have indoor plumbing in those Pieces of Shit?   My guess is JP Morgan and Goldman are loaded up on these magnificent investment properties in some of their magical alphabet soup mixes.

 

Thu, 05/29/2014 - 22:54 | 4808474 BandGap
BandGap's picture

Thank you for the laugh before heading to bed.

Thu, 05/29/2014 - 23:32 | 4808560 are we there yet
are we there yet's picture

So thats what they mean by getting in on the ground floor of a great investment.

Thu, 05/29/2014 - 22:58 | 4808485 orangegeek
orangegeek's picture

No No.  Price is same.  No change.  But I give you weebate.

Thu, 05/29/2014 - 23:00 | 4808492 user2011
user2011's picture

Wait WSJ and mainstream media is helping US gov to beat down on China and Russia after the Ukraine incidents. Should we really trust WSJ ?

I am not saying Chinese bubbles are fake. I am just curious if it is really as bad as WSJ said.

Thu, 05/29/2014 - 23:09 | 4808512 hairball48
hairball48's picture

Never fear! America's turn is coming.

There's still a lot of Americans who are going to find out that a house really is a "place to live", and not a financial asset.

When the U$Dollar finally goes tits up in the biggest bubble burst in financial history--and it will--they'll find out.

 

Thu, 05/29/2014 - 23:23 | 4808538 yogibear
yogibear's picture

Oh,, the US won't escape this downdraft.  

The US goes Japan. A QE frenzy and the death of the dollar.

Printing to death is the only thing left for the Fed.

Fri, 05/30/2014 - 00:22 | 4808557 G-R-U-N-T
G-R-U-N-T's picture

Twil be deflation that kills the beast, down, just like those fucking Chinese scrapers!

Thu, 05/29/2014 - 23:44 | 4808574 laomei
laomei's picture

Misinformation due to either stupidity or ill-intent here.  This is not "buy one floor get one free".  This is "Buy a unit and get a storage room which is otherwise basically worthless to use as retail space for 3 years".  6~10sqm storage room actually.  That's nothing crazy or unusual, and the entire point of "gifting" it, is to keep it off the official books for floor space calculations... which means tax savings.  Patios, basements, garages, balconies, attics all tend to be "gifts" when it comes to buying places over here and it's been a thing for a long long long long time.  

Here's REAL details http://www.soufun.com/news/2013-07-03/10442500.htm

And check that date: It's from a year ago.  WSJ, as usual, full of crap.

 

This is also not "remote suburb", it's south-east 6th ring, 3km away from the subway.  If you know anything about Beijing though, you would understand why the prices are low here.  And if you knew anything about how housing works in China, you'd understand that furnishings being gifted are pretty much nothing unusual.

Fri, 05/30/2014 - 04:01 | 4808770 intric8
intric8's picture

im curious who the developer is for that condo pictured above that went donk, and if the engineering for all those rush real estate condo projects built over the last few years is reliable. Seriously, how can an entire building just fall over??

Fri, 05/30/2014 - 05:59 | 4808830 laomei
laomei's picture

That's a stupidly old picture as well.  It's not even the right picture for what they are trying to push propaganda-wise.

Here's a building which fell over:

http://www.truthorfiction.com/rumors/c/china-apartment-falls.htm

Not because of poor construction, but due to excavation and mismanagement of the excavated earth

 

Here's the picture they keep posting:

http://www.dailymail.co.uk/news/article-1239841/Youre-doing-wrong-Chinese-demolition-men-accidentally-create-leaning-tower-Liuzhou.html

They were demolishing an old building.  The demo didn't go as planned and instead of collapsing in on itself, it broke in half and fell over.  If anything, that should show that it was built pretty damned well to begin with.

Fri, 05/30/2014 - 07:20 | 4808874 intric8
intric8's picture

they should've brought in a geotechnical engineer

Fri, 05/30/2014 - 09:16 | 4809102 Toolshed
Toolshed's picture

Just out of curiosity, what is the pay for being a China pimp?

Fri, 05/30/2014 - 09:20 | 4809117 laomei
laomei's picture

What the hell, let's explain some basic real-estate facts in Beijing, maybe a reporter will read this comment and the next time they write propaganda, they can litter it with some actual facts instead of just making it up as they go along hoping no one notices.

 

South Beijing is very undeveloped.  Especially south-east.  East Beijing (tongzhou) is a bit better, but it has things like highways and long-established subway lines which make it semi-realistic to live there.  Good reliable jobs are generally located in the CBD and up north.  The best schools are over in Haidian and Xicheng.  South Beijing was historically the place for the poor to live, it's where the expanded southern moat goes and everything south of that line has generally been cheap for a long time.. it also floods, gets hottest in the summer, doesn't have great farm land and suffers from the climate consequences of Beijings mountains.  So, once you get past south 3rd, it's just a bunch of nothing.  No good schools, no good jobs, no good hospitals, only recent access to the subways, no good highway access.  For these reasons, it's a GREAT place to put economy housing.  It's also why the housing there is 1.5w/sqm, and why here up north, anything under 4w will get snapped up instantly, with nicer places north of 8w.

 

So, here's how property works:

Generally, you have access to the housing fund, which is 80~100w of low-interest loan requiring a 20~30% downpayment.  Funny, how this place works out to 130w... innit?  So, anyways, that 0-down plan works like this: As a first-time buyer, I come to shitty south-east 6th ring cus I'm poor, but have been in Beijing for over 5 years and been paying taxes.  I have an ok income, but no real savings, or my savings are invested.  So I sign on the dotted lines and pay the taxes out of my own pocket.  In return, I get a 30w loan from the developer for the downpayment.  Now, interest on that loan is gonna be higher than I like, but it's short-term. In fact, it's very short term.  From the time I sign to the time I get to move in, we're looking at 2~3 years, and that's the term of the loan.  So I get that payment, plus the housing fund loan repayment (a good sized chunk comes from my company though).  If I can't pay it back for whatever reason, 1 of 2 things will happen.  Either payments are suspended if I can legitimately show it's my only home and am having economic difficulties. Or it will be auctioned off.  If the auction fails to pay it off, it's still full-recourse.  So from a developer standpoint, this is a really safe bet to make, the 30w will come back to me anyways, and I already got my money from the housing fund, literally not my problem.  These are not "liar-loans", or NINJA loans, or anything like that in any way at all.  But hey, since the only thing that americans understand is the fucked up system in the US, we all have to pretend that the rest of the world is totally exactly the same no matter what.

Fri, 05/30/2014 - 00:03 | 4808596 sunny
sunny's picture

Haven't we've been hearing about the imminent collapse of the Chinese housing bubble for several years now.  I think it all started with the ghost cities in the middle of no-where.  Japan was in denial for 20 years.  Don't get me wrong, there is no question that China has certain "issues" with real estate, but why should we not expect China to have the same 20 years that Japan has had.  

I'm getting a bit bored with all this talk about the collapse of China.  Don't tell me about it.  Wake me what it happens.

Fri, 05/30/2014 - 00:14 | 4808615 Tinky
Tinky's picture

Don't expect to have a long dream. Any comparisons with Japan are patently absurd, given the radically different context of today's world.

 

Fri, 05/30/2014 - 07:28 | 4808872 buzzsaw99
buzzsaw99's picture

i would say japan was even worse but japan's property and stock bubbles were comparable when poorness of the chinese wage slave is added in with the rampant overbuilding.

Fri, 05/30/2014 - 00:49 | 4808658 QQQBall
QQQBall's picture

Like 2 for 1 is not cutting prices. We live in very strange times

Fri, 05/30/2014 - 00:54 | 4808666 q99x2
q99x2's picture

Maybe things will be ok. And, maybe they won't.

Fri, 05/30/2014 - 01:58 | 4808725 cdm
cdm's picture

ahh ... buy 1 FROR,

get one.

flee.

 

Fri, 05/30/2014 - 04:08 | 4808775 Kasperfx
Kasperfx's picture

lol and this is the same geographical population that are claimed to be buying up all the USA homes, yeah right, the chinese buyerss along with the china, us and uk housing markets will be all fried rice soon . 

Fri, 05/30/2014 - 05:06 | 4808813 thisisjustarand...
thisisjustarandomusernameicreatedforzerohedge's picture

i think this may be a bad translation... pretty sure the translation, when saying "get one free" is not refering to the "floor" but the "party bag" which is really just extra building amneties i think...

my chinese is pretty rusty but this wouldn't be the first time I've seen Chinese news mistranslated and posted here too quickly without vetting it

Fri, 05/30/2014 - 07:07 | 4808863 AdvancingTime
AdvancingTime's picture

It is hard to say what is real in a fake economy. Much of the recent growth in China after 2008 came from a massive 6.6 trillion dollar stimulus program that expanded credit and poured massive amounts of money into the system. This money encouraged expansion and construction with little regard as to real demand or need.

Like a plane on autopilot China continued in the direction it had been on. Now China finds itself in a credit trap. For years the people of China have had the habit of saving much of what they earn but the low interest rates paid at banks has not rewarded savers. With few investment options much of this money has drifted towards housing and driven housing prices sky high. The economic efficiency of credit is beginning to collapse in China and the unwinding of China’s giant credit spree could be very painful. More in the article below.

http://brucewilds.blogspot.com/2014/03/china-and-great-credit-trap.html

Fri, 05/30/2014 - 08:51 | 4809028 Zeta Reticuli
Zeta Reticuli's picture

Another China-bashing article. They take an isolated incident, mistranslate the language, and come to a false conclusion, meanwhile claiming it represents ALL of China. What is their motivation? Are they fundamentalist Jesus Freaks that hate China because they can't peddle their superstitions there? Or are they Americans who are trying to offset the way they feel about their country failing? Or just typical tabloid journalists who will write anything to sell a story.?

Oh, and the A/C. I have never seen a window A/C unit in the country except in very old buildings in Hong Kong. Everybody uses split systems. No windows involved. No expensive, space-hogging ductwork.

Fri, 05/30/2014 - 08:56 | 4809051 Ban KKiller
Ban KKiller's picture

Yes.

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