Sean Potter, Author at Amora Escapes

Mexico’s outrageous land grab of Alabama company’s property ‘undermining’ diplomatic relations, U.S. Senators say

Sean Potter — Thu, 01 Aug 2024 13:41:56 +0000

U.S. Senators Tommy Tuberville (R-Auburn) and Katie Britt (R-Montgomery) joined a group of their fellow Senate colleagues this week in demanding that Mexican President Andrés Manuel López Obrador halt his coordinated attempts to take over land owned and operated by Alabama-based Vulcan Materials.

The condemnation from the legislators is the result of a decision made last week by the Mexican presidential administration to classify Vulcan’s land and port as a naturally protected area. The change, according to the Senators, would eliminate Vulcan’s rights to the land and ability to operate the port.

“Make no mistake, President López Obrador’s recent effort to label Vulcan Materials Company’s land and port in Quintana Roo, Mexico, as a ‘naturally protected area’ is an expropriation of a lawfully permitted, U.S.-owned operation,” said the Senators. “We are deeply concerned by the Government of Mexico’s latest effort to illegally acquire the property that Vulcan operates.”

The elected officials emphasized the lengths that Vulcan routinely goes to to ensure that they are compliant with all governmental regulations.

“This American company has a proven track record of going above and beyond required permits that were routinely renewed by all levels of government to protect sensitive areas, reforest native jungle, preserve archaeological sites, and establish protected wildlife habitats.”

A well-established economic relationship between Mexico and the U.S. is at major risk the group said.

“The López Obrador administration is continuing to set a dangerous precedent with these actions, undermining the long-standing bilateral relationship between our two countries and eroding international confidence in Mexico’s adherence to the rule of law.”

“We remain committed to using all appropriate tools at our disposal to deter the Government of Mexico from seizing Vulcan’s lawfully owned and operated property and ensure no entity or individual benefits from its theft.”

Source

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China Property Stocks Fall 20% From May High as Concerns Linger

Sean Potter — Wed, 12 Jun 2024 08:09:35 +0000

China’s property stocks entered a technical bear market over concerns that Beijing’s efforts to bolster the sector are too small to end the rout.

A Bloomberg Intelligence gauge of Chinese developer shares fell 3.3% on Thursday, extending losses from a mid-May high to almost 21%. Sunac China Holdings Ltd. was the biggest laggard with a slump of 12%, while CIFI Holdings Group Co. sank 8.4%.

Real estate stocks have retreated amid skepticism over a broad support package unveiled by the central government on May 17. While investors initially cheered the policies, which include lower down-payment requirements for homebuyers, they have since questioned how useful they will be in reviving demand and addressing a housing inventory glut.

There’s also the concern about the size of the measures. Officials have said that a central bank program would incentivize bank loans worth 500 billion yuan ($69 billion), but that’s a small fraction of the value of China’s vacant apartments.

”The latest sales data show there’s not much improvement in property fundamentals,” said Jeff Zhang, an analyst at Morningstar Inc. “We may need to wait until the end of year to see a narrowing of declines or a rise in monthly sales as a result of the government’s rescue package.”

New-home sales at the 100 biggest real estate companies dropped 33.6% from a year earlier in May, easing from a 45% decline in April, China Real Estate Information Corp. data showed. While the slight month-on-month pickup buoyed property shares earlier this week, worries over the long-term outlook later pushed investors to take profits.

“We only do short-term investment in Chinese property stocks as the industry’s fundamentals are still weak,” said Joy Young, the founder of Shenzhen Infinite Fund Management Co.

As some investors wait for a clearer sales-recovery picture, others are seeking clues on major policy shifts that may be unveiled at the Third Plenary Session in July.

Beijing will likely follow other cities such as Shanghai and Shenzhen in relaxing housing curbs, according to John Lam, an analyst at UBS Group AG. Other possible measures may focus on destocking, he added.

Morningstar’s Zhang expects the Chinese government to be more active on property supports until July’s plenum, “but the room for policy adjustments may be smaller than before, as the May rescue package is already very forceful.”

Source: Bloomberg

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Commercial property sector expects more flexible lease terms in future

Sean Potter — Sat, 06 Apr 2024 15:14:46 +0000

The Republic’s commercial real estate sector expects lease terms to become more flexible for both tenants in the future as the industry recalibrates to new post-pandemic realities.

A survey of some 250 commercial property professionals, conducted by business law firm Mason Hayes and Curran in late February, also indicates that the sector considers current rent review processes to be fair but ultimately wants better access to market data to level the playing field.

The Republic’s commercial property sector, particularly the office market, has come under pressure in the aftermath of the pandemic due to several interrelated factors. Hybrid working arrangements have eaten into demand for office take-up while many large employers — most notably in the global tech sector, which accounts for a significant proportion of office demand in Dublin — have reduced their headcount in response to shifting market dynamics.

Meanwhile, rising interest rates have made the cost of borrowing and servicing property-related debt more expensive for landlords and commercial property owners.

Headline rents are yet to decline substantially but close to half of survey respondents said they expect commercial leases to become more flexible for tenants and landlords soon.

However, a sizeable 46 per cent of respondents said they expect lease terms to become more tenant-friendly.

“Since Ireland legislated to end ‘upwards-only’ rent reviews in commercial leases in 2009, the rent review process has become more complex,” said Michael Doran, partner and co-head of real estate at Mason Hayes and Curran. “All parties must now agree an ‘open market rent’ that could be higher, lower or remain the same as the original amount. There are a number of factors that can affect rental value, from the strength of the market at the date of review to the assumed lease term.”

While an overwhelming 81 per cent of real estate professionals said the current rent review processes are fair, almost half said they would like better access to market data, reflecting a “move towards a more informed and data-driven negotiation process”, said Mr Doran.

Meanwhile, 61 per cent of professionals said their main goal when entering rent review negotiations was to achieve market-aligned rates while just 20 per cent said they are chiefly concerned with securing long-term occupancy.

Source: The Irish Times

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Eight Golden Rules for Property Investors in 2024

Sean Potter — Sat, 10 Feb 2024 12:38:41 +0000

An expert has shared his eight steps to help boost chances of securing capital growth when investing in property this year.

Jonathan Rolande, the founder of House Buy Fast, says early signs indicate “growing positivity across the market”.

He adds: “We’ve seen three consecutive months of house price rises and it looks as if the repeated interest rate increases which dogged the market in 2023 are over. This will rightly encourage people to look again at property as an area to invest in.”

· Start by checking the demographics. Areas with more older people tend to hold prices well but don’t have as much potential for growth as there are fewer movers.

· Next, look at the schools, the building of a new school or college or an existing one that has improved its ratings is a very good sign. Many buyers and renters will pay more to live near a good educational institute.

· Thirdly, check the ratios – how many properties are on the market in the area and of those, how many are sold. 30 per cent-plus sold is a good indicator. Check rentals too, there should be no more than a handful of properties available to let in the postcode area.

· Four, investigate what prices have done in the past. It’s not a sure-fire way to predict the future but areas that have exceeded past increases or haven’t fallen as far in previous dips should be at the top of your list.

· Take note of crime rates the lower the better.

· Six, investigate any developments nearby. Developers investing millions into property in the area is a very good sign, just be aware that this can have a negative effect – the area could be flooded with buy-to-let, driving prices down.

· Seven, assess if the area is prone to flooding. Those which can be tricky but don’t be too alarmed by online searches. Many areas show a possibility of flooding at some time in the future.

· Finally, ask can you add value? With the right permissions and vision there are ways to improve properties to create more income in rent and the capital value. Moving a kitchen to the lounge area frees up a room, extending into the roof space or garden, changing the planning use or adding a garage can add value.”

Source: Property Investor Today

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How Much Melbourne Home Prices Could Rise in 2024: Proptrack Property Market Outlook Report

Sean Potter — Wed, 27 Dec 2023 12:55:02 +0000

Melbourne house prices are tipped to rise up to $37,000 in 2024.

But a landlord exodus driven by rising state government taxes that is part of the reason more homes have hit the the market than in any other city over the past year will see the city lag behind almost every other capital.

The PropTrack Property Market Outlook Report has forecast 1-4 per cent for the city’s property market in the next 12 months that could bring the median house price to more than $950,000.

PropTrack economic research director Cameron Kusher said while Melbourne was expected to attract less home price growth than Sydney, Brisbane, Adelaide and Perth, it could potentially double the about $17,000 (1.9 per cent) growth the Victorian capital unexpectedly notched in 2023. They had been forecast to decline 7 per cent this year.

Mr Kusher said despite the fastest increase to interest rates since at least the 1990s, rising costs to build new homes and Victoria accounting for a substantial portion of the nation’s incoming migration would combine to drive home values up.

“The fact we are at or near peak interest rate levels could see more people looking to buy next year,” he said.

Home price growth is on the cards in 2024, but Melbourne will lag behind other capitals.

While the Outlook report has flagged a tough year for first-home buyers around Australia, Mr Kusher said record-low rental vacancy rates could drive some of them to find a way to buy a home and escape from increasingly uncertain tenancies.

Ironically, their chances might be improved by landlords selling off rental homes at an accelerated level this year, as Melbourne has more homes for sale than any other capital in part thanks to their exodus.

“There are quite a lot of investors looking to exit Melbourne and Victoria because there are quite a lot of taxes,” he said.

From next year, investment property owners will be hit with increased land tax costs as the state government implements a series of levies to try and recoup Covid-era budget losses.

Real Estate Buyers Agents Association of Australia Victorian representative Luke Assigal echoed the landlord sell off commentary and said he expected the trend could be even more pronounced as planned new taxes on investment and secondary properties came to fruition in the new year.

Homes like 2 Cunneen St in the Bendigo suburb of Long Gully could be set for price gains in 2024. The home is currently listed for $440,000-$480,000.

Speaking as part of REBAA’s end of year analysis for 2023, Mr Assigal said he believed even an uptick in investor sales next year wouldn’t slow the market and predicted there could be as much as 6 per cent growth — about $55,000 for Melbourne’s $917,000 median-priced home.

But he said the fate of first-home buyers in the new year could rest with the Australian Prudential Regulation Authority, who he said could price many back into the market by reducing assessment rates for home loans from the current 3 per cent above the home loan rate of the day.

An interest-rate cut could also drive demand, and Mr Assigal said either scenario could make Melbourne’s undervalued far west, from Werribee to Hoppers Crossing, and outer northern suburbs, like Epping, hot property.

He added that regional areas around Ballarat, followed by Bendigo and Geelong, could also benefit from squeezed homebuyer budgets.

Source : RealEstate.com.au

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Commercial Property’s Debt Burden Exceeds Pre-2008 Level in Eurozone, Warns ECB

Sean Potter — Tue, 05 Dec 2023 00:39:18 +0000

Eurozone property companies are being hit by surging losses and some will struggle to support their debts, which have risen to a higher level than before the 2008 financial crisis, the European Central Bank has warned.

The losses, which the ECB said would have “consequences for the resilience of banks’ loan books”, stem from sharply higher financing costs, falling commercial property values, weaker rental income and rising concerns about the energy efficiency of buildings.

The central bank said signs of stress in the commercial property sector, which accounts for 10 per cent of all eurozone bank loans, “have the potential to significantly amplify an adverse scenario” and would “drive large losses” in the wider financial system.

The average debt of larger European property companies has risen above 10 times their earnings, “close to or above pre-global financial crisis levels”, the ECB said in part of its twice-yearly financial stability review. The full review is out on Wednesday, but the ECB published its concerns on commercial real estate a day early.

Rises in ECB interest rates have hit the sector hard. It now costs 2.6 percentage points more to finance the purchase of commercial real estate assets in Europe than it did before rates started increasing last year, according to eurozone credit registry data. The central bank’s benchmark deposit rate is now 4 per cent — up from minus 0.5 per cent before the tightening cycle began.

The rise in borrowing costs would pose a refinancing challenge for the most indebted companies, the ECB said, pointing out that rating agency Moody’s Analytics had cut ratings or outlooks on 40 per cent of European real estate companies in the year to March 2023.

The problem is most acute in countries such as Finland, Ireland, Greece and the Baltic states, where more than 90 per cent of loans to commercial property companies are at variable rates or mature in the next two years. This compares with only 30 per cent in the Netherlands and 40 per cent in Germany.

“Business models established on the basis of pre-pandemic profitability and low-for-long interest rates may become unviable over the medium term,” the ECB warned.

The sharp downturn in eurozone commercial real estate is underlined by the 47 per cent drop in the number of transactions in the sector in the first half of this year, compared with the same period in 2022.

The share of bank loans to lossmaking real estate borrowers is expected to double to 26 per cent, the ECB said. But it warned this could rise to half of all loans if turnover in the sector fell by a fifth and the tighter financing conditions persisted for another two years.

The central bank said debt levels were likely to “deteriorate further as these firms’ earnings decline and commercial real estate prices are revalued downwards”.

Shifts to homeworking and online retail have hit demand for offices and shops, weighing on rental income for property owners, while older and lower-quality buildings are suffering bigger drops in rents as tenants focus more on a building’s energy efficiency.

In a sign of how investors believe the price of commercial property has fallen sharply in the past two years, the market value of listed eurozone property companies has fallen from 110 per cent of the book value of their assets to less than 70 per cent.

Europe’s residential property sector has faced similar challenges. But the ECB said a strong labour market was helping to keep mortgage defaults low, while housing shortages and rising construction costs were providing support to prices.

Source : FinancialTimes

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High Property Prices and Cost of Living See More Sydneysiders Leaving

Sean Potter — Fri, 17 Nov 2023 13:57:46 +0000

According to the Regional Movers Index, 80% of the Aussies who left a capital for regional Australia in the past year came from Sydney.

This is up from the year to September ’22, when the index, powered by CommBank and the Regional Australia Institute, found 60% of capital to region migrants were coming from the NSW capital.

The CPI index showed goods and service prices in Sydney rose another 1.3% from July to September, 5.6% over the year, with housing inflation up 3.3% over the quarter, the biggest increase in the country.

Earlier this year, Muval removalists revealed nearly a third of all outbound enquiries they received were from Sydney, with CEO James Morell saying the cost of living exodus “could be on par with Covid”.

With much of the record recent overseas migration concentrated around Sydney, property prices have been driven back up, and more Aussies are just simply being priced out of living there.

Since bottoming out in January, Sydney property prices have risen 11.6% according to CoreLogic, with the median price for houses and units now at $1,121,196 and $832,222 respectively.

Two Red Shoes mortgage broker Rebecca Jarrett-Dalton says for first home buyers, Sydney is virtually out of reach.

“Even with a healthy budget of $800,000, the price cap for buyers taking advantage of the government’s first home loan deposit scheme, buyers are priced out of most of Sydney’s suburbs,” she said.

“To stay within budget, first home buyers would need to search for properties on the city’s fringes on the west, south-west and as far as the Blue Mountains.”

Where to now?

In the past year, capital city property prices have mostly appreciated faster than regional areas, with demand returning to the big cities after a regional surge during the pandemic.

Lots of this however is due to international migration, and with demand pushing up prices, there’s still a sustained trend of Aussies leaving the city for regional areas, with affordability likely a big factor.

This is one of the factors that could in turn help mitigate price growth in the big cities, with more buyers priced out looking elsewhere, easing demand.

Regional Australia Institute (RAI) CEO Liz Ritchie says capital to regional migration levels are up 11.7% on the pre Covid average, and there’s growing opportunity away from the likes of Sydney and Melbourne.

“In September there were 91,400 jobs advertised in regional Australia, which is partly why we’re seeing such strong migration to our country communities,” she said.

The Index found 39% of Aussies leaving the capital cities moved to regional NSW, up from 26% in the 12 months to September ’22.

The Snowy Valleys Local Government Area (LGA) in southern NSW seems particularly attractive, with net internal migration increasing over 200% over the past quarter.

However, the most popular destination for internal migration was Queensland’s Sunshine Coast, which attracted 16.7% of the total in the year to the September quarter.

Top five regional LGAs by share of internal migration

	Proportion
Sunshine Coast (QLD)	16.7%
Greater Geelong (VIC)	8.3%
Gold Coast (QLD)	8.3%
Fraser Coast (QLD)	6.5%
Moorabool (VIC)	5.8%

Top five LGAs by share of capital-regional internal migration

	Proportion
Sunshine Coast (QLD)	13.0%
Gold Coast (QLD)	9.2%
Moorabool (VIC)	5.7%
Lake Macquarie (NSW)	5.4%
Greater Geelong (VIC)	5.1%

Source : Savings.com.au

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The German Property Crisis Claims Its First Big Victims

Sean Potter — Thu, 26 Oct 2023 09:18:16 +0000

In July, Nuremberg’s mayor celebrated the final beam being placed atop the redeveloped Quelle building, a monumental 1950s symbol of postwar Germany’s economic revival. Revamped with offices, shops and homes, a big part of the giant complex was slated to open next year.

In recent weeks, however, the site’s developer, Gerch Group, which has €4 billion ($6.6 billion) of projects under construction, has filed for insolvency proceedings, along with one of its project companies linked to the development. The opening date is now in doubt.

The Quelle building in Nuremburg, whose developer has filed for insolvency. Bloomberg

It is yet another blow to a property market reeling from the end of the cheap-money era, but it also shows who is most vulnerable to the shakeout. While investor fears during the current real estate crisis have centred on landlords, the travails of Gerch and its ilk show that developers – the firms that own the building projects – are the ones in imminent danger.

“Project developers are struggling with the increased construction costs, increased interest rates and the drop in prices,” says Marlies Raschke, co-head of restructuring and insolvency at law firm Noerr. “We’ve seen several of them filing for insolvency in the last weeks and we expect more.”

Alongside Gerch, Munich’s Euroboden, which touts star architects such as David Chipperfield among its collaborators, is in preliminary insolvency proceedings. Project Immobilien Group filed for insolvency in August along with many of its project companies, and some of the work is being tendered for new contractors, a spokesperson for the preliminary administrator says. The three firms did not respond to requests for comment.

Developers around the world face similar woes. In Australia, Porter Davis is among home builders that have gone into liquidation this year after surging costs and falling demand. In Sweden, a rise in bankruptcies has been driven by a construction slump, while in Finland housing starts could plunge to levels not seen since the 1940s, according to the country’s construction lobby.

It’s a rapid change in fortunes after the years of rock-bottom interest rates, when money poured into property as investors hunted for yield. Developers like Gerch could comfortably load up projects with cheap debt and sell into a market where prices just kept rising.

The mood is very different now. German real estate transactions for offices are at their lowest point on a 12-month rolling basis since at least 2014, according to property firm Savills. Vonovia SE, a big landlord, warned in its financial results that new construction developments are “barely viable”.

“The speed of correction is significant,” says Henning Koch, boss of Commerz Real, one of Germany’s biggest property investors. “The recession in the German real estate market started one-and-a-half years ago and now in the last two to three months we’ve seen more and more developers go bust.”

Developers are particularly vulnerable because of a collapse in land values, which makes projects riskier. As interest rates have soared, investors have demanded higher rental yields to compensate, which in turn pushes down the price they will pay for a finished site. Construction costs are also spiralling and developers are having to put more money aside for unexpected expenses.

Taken together, all these factors depress the underlying value of developer land. It upends the economics of property development, too, with the price drop meaning some companies may lose money just by finishing a building.

In one example, Aggregate Holdings SA, the diminished real estate empire run by Cevdet Caner, had to hand over the keys of Berlin’s QH Track project to creditor Oaktree Capital Management. Hit by cost overruns, it tried to negotiate with lenders to fund the project through to completion but the talks failed.

Unfinished state

Germany’s development boom was fuelled in part by mezzanine lenders including Corestate Capital who were willing to make chunky loans to developers with little equity. That worked when part-built or yet-to-start projects could be forward sold to pension funds happy to pay ahead for a completed site. The market correction has left developers without agreed forward sales in limbo, saddled with pricey debt and runaway costs.

“Normally, we’re looking for fresh money from the existing financing parties – from shareholders, investors — to try to complete the project,” says Christoph Morgen at Brinkmann & Partner, who’s acted as an insolvency administrator for some smaller developers. “It usually causes a loss of time, it interrupts the building process. And all the time, it’s getting more expensive.”

Creditors are taking note. One senior German banker says their bank is trying to establish ties to some of the country’s stronger developers, so it can tap them to take over if a building runs into trouble.

Grandiose developments in an unfinished state can also become civic eyesores, and a political problem if left dormant too long. In Nuremburg, the mayor’s office says it’s “confident” the Q project will continue, after receiving positive noises from the various owners of the different parts of the vast complex.

“The owners want to realise their projects without consideration of Gerch Group’s insolvency,” the mayor’s office says in a statement. “On the city’s side, we support by continuing all planning and administrative processes.”

Pensioner pain

The exposure of retail investors and smaller pension funds, who piled into real estate during the boom times, adds another awkward political dimension. Their involvement can make negotiations complicated, especially if new money’s needed. Noerr’s Raschke says German pension funds – such as those for doctors, lawyers or dentists – may be limited in providing more liquidity for regulatory reasons.

Some retail investors are exposed to developers via high-yield bonds. Euroboden noteholders, for instance, are readying themselves for an upcoming creditor meeting. This class of debt holder is often in a weaker position than other creditors. While bank finance is usually tied to projects or buildings, many junk bonds are issued at a holding company level with little security – worsening the chance of getting money back.

“From the perspective of bondholders, the interest received on those bonds in recent years was much too low,” says Daniel Bauer, chairman of the board of SdK, a German investor group. “They were taking on an equity-like risk.”

Developer defaults will hurt the broader property industry, too. Residential builders are already missing out on work, with more than one in five construction companies surveyed by the Ifo Institute reporting cancelled projects. That’s the worst since the survey started in 1991.

“It’s a warning signal for the building-materials and construction sector,” says Ralf Moldenhauer, a senior partner at Boston Consulting Group in Frankfurt. “We expect to see more stress in that sector as well.”

Source : FinancialReview

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APAC Property Sector Demonstrates Growth Amid Global Uncertainties

Sean Potter — Thu, 28 Sep 2023 01:21:49 +0000

The APAC property market has demonstrated strength throughout 2023, and has grown in global popularity as a desirable location for luxury real estate and high-end living.

According to Henry Chia, Director of APAC Enterprise Clients at Colliers Singapore, the office and residential sectors have played key roles in the performance of the retail market, with occupancy levels outperforming North American and European markets, averaging between 65% and 80%.

International skilled workers migrating to Singapore are willing to purchase high-end real estate as a secondary home to reside in while working in the APAC region.

According to Chia, key markets such as Melbourne, Hong Kong and Mumbai are anticipated to show an increase in the luxury real estate market by the end of this year.

Similarly, South Korea is now experiencing a favourable high-end rental market due to limited supply in the last year, which resulted in low vacancy rates of 2.3%. Chia suggested that this is set to rise, with Korea being a large player in the APAC luxury rental market for international HNWIs.

Chia also noted that the rise of flexible workspaces has created improved opportunities for the luxury real estate industry to take a foothold in both Australia and India.

International HNWIs wishing to secure an apartment on South Korea or India’s upcoming property market should use a safe money transfer service when making international payments.

Since the Covid-19 pandemic, luxury apartment complexes have started to include workspaces, gyms and spas to cater to international skilled workers and HNWIs.

According to Chia’s findings, the luxury rental occupancy levels in the APAC region have recovered from the pandemic far stronger than predicted, despite the tumultuous global real estate market.

His research also revealed that by 2024, the majority of landlords will be building apartment complexes with amenities such as workspaces and gyms to ensure that their properties are attractive to wealthy individuals.

The data suggests that international buyers have become increasingly more demanding of their luxury living complexes, which has resulted in a shift to more premium offerings, not only in terms of location but also in terms of facilities, amenities, service quality, design and landscaping.

Wealthy individuals looking to purchase a home on the APAC property market should use safe international money transfer options.

International HNWIs looking to migrate to an overseas destination should use our money transfer comparison tool to get the best exchange rates.

Source : FXCompared

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Words Only Go So Far: Investors Want Property Fixed Before Buying China

Sean Potter — Thu, 24 Aug 2023 00:58:59 +0000

HONG KONG/NEW YORK, July 31 (Reuters) – For all the excitement whipped up in China’s markets by the Politburo last week, foreign investors say policymakers’ words will have to be matched by substantive action to clean up an ailing property sector before confidence recovers.

The sector accounts for a quarter of China’s economy, yet developers’ debts are sliding deeper into distressed territory, with repayment problems mounting while sales crumble.

When the Politburo signalled that there would be changes to real estate policy, along with other measures to boost an economy, it ignited the biggest one-day buying spree in China’s stock markets since 2021.

The July 25 rally was enough to lift the benchmark index (.CSI300) into positive territory for the year, but a sustained upturn would depend on policymakers making good on their – so far vague – promises.

“Foreign investors may have started buying more Chinese equities in the hopes that the Politburo was going to herald big, meaningful stimulus, but we would wait until we see more specific measures,” said Tara Hariharan, managing director at global macro hedge fund NWI Management LP.

“The question is what resources they will deploy, because China is still very focused on de-leveraging and preventing financial risks.”

The sorry state of developers’ balance sheets sits right at the top of the risk list.

“Is real estate worth rescuing under China’s current economic model? Absolutely, and urgently,” said Qi Wang, the chief investment officer (CIO) of MegaTrust Investment (HK), a boutique China fund manager specializing in domestic Chinese A-shares.

But investors should be cautious and patient, said Wang, noting the lack of detail from Politburo last week. China “requires more drastic measures than what we have today,” Wang wrote on his Substack.

Finding a way to restore the property sector’s health would have greater impact on the economy, than tax cuts or growth in the technology sector would deliver.

It would unlock consumer spending by homeowners who have lost faith in a housing market, where they have stored their wealth.

Mark Dong, general manager of Minority Asset Management, based in Hong Kong, has reduced his exposure to the property sector. “The sentiment is bottoming, but there is lack of catalyst. It seems that there are no substantive measures yet to help developers, such as bailing out the troubled developers. “

A national-level loosening, such as cutting loan down-payment ratios, is the sort of big gesture necessary, said Bo Zhuang, a senior analyst on the macro strategies group at Loomis Sayles Investments Asia.

‘SOMEWHAT CHALLENGING’

Jingjing Weng, head of Chinese equities research at Eastspring Investments in Shanghai said last week’s rally was largely driven by short-covering.

“The key is when and what specific measures will be followed,” said Weng. “Investors are still more on a ‘wait and see’ approach as they need to see a more sustainable rally in the Chinese equity markets before going back in.”

Foreigners’ net stock purchases of 19 billion yuan ($2.7 billion) on July 25 were the largest one-day rush in a year and a half.

For the year, however, net buying sits around 230 billion yuan, having more or less stalled after net inflow of 186 billion yuan in the first quarter as economy lost its post-pandemic bounce.

Rob Hinchliffe, portfolio manager portfolio manager and head of global sector cluster research at PineBridge Investments, based in New York said their exposure to China is lower than a year ago.

Investing, Hinchliffe said, is “somewhat challenging in China, given some of the top-down decisions that are made. We are underweight China overall now.”

Wai Mei Leong, fixed income lead portfolio manager at Eastspring Investments, says her fund only picks property firms owned or affiliated to the government and the sector’s recovery will drag on for 2 to 3 years.

NO CONFIDENCE

Anxiety over the debts that developers were carrying had festered for much of the past decade. The crunch came three years ago, when worried authorities restricted developers’ borrowing and upended a business model that depended on loans and pre-sales to fund construction.

China Evergrande Group, the most indebted developer, collapsed and unfinished projects dotting cities froze the market.

As the relaxation of COVID-controls failed to bring a sustained rebound in sales, even the more stable developers such as Country Garden (2007.HK) started to struggle with cash flow.

Speculators brave enough to put money in developers’ stocks and bonds last year were rewarded by the rally sparked by the Politburo’s assurances. But larger players say that is no basis for longer-term investing given the fundamental problems developers are facing.

“No one’s got confidence on how these companies are going to survive,” said one fund manager looking after an emerging market credit portfolio for a U.S. asset manager, who declined to be named as they are not authorised to speak publicly.

“Without asset sales or selling of houses – which is declining – how are they going to come up with the cash?” he said. The safest bets in the sector, he said, had come down to state-owned companies such as China Resources Land (1109.HK) and Poly Property (0119.HK).

Source : Reuters

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