SinoInsight 1
China’s Golden Week, the annual week-long national day holiday, is traditionally a peak period for property sales. Sales, however, plummeted this year.
The average daily transaction area of property in 14 major cities decreased by 21.9 percent during the 2019 Golden Week as compared to the 2018 Golden Week, according to data from the China Index Academy. Transactions fell by nearly 40 percent in first-tier cities and 20 percent in second-tier cities, while growing by 18.6 percent in third-tier cities.
Three of four first-tier cities saw declines in property transactions, with the most significant declines in Beijing and Shanghai. Shanghai saw a total of 2,700 square meters of area in average daily transactions between Oct. 1 to Oct. 6, or 95 percent lower as compared to the same period in 2018. The area of average daily transaction area for Beijing was 1,700 square meters, down 75 percent year-on-year; in Guangzhou, the figure was 53,300 square meters, down 11 percent year-on-year; and the average daily transaction area of Shenzhen was 35,000 square meters, up 85 percent from the previous year.
According to data from China’s Centaline Group, in Beijing, only 29 units of new homes were sold between Oct. 1 to Oct. 6 this year; between Oct. 1 to Oct. 5, only 26 units of second-hand homes were sold.
OUR TAKE
1. China’s poor property sales over the Golden Week is in line with recent downward trends in the mainland property market, and affirms our multiple earlier warnings about a housing bubble crisis.
2. Property sales in China have been far from encouraging so far during the September-October peak period, according to mainland media reports.
For example, in Beijing, the volume of commercial housing sold in September was only 4,524, a decrease of 17 percent from the previous month; only 2,006 units of residential housing valued at the average price of 70,000 yuan per square meter were sold, down 15 percent from August; and only 1,336 units of fixed-price housing were sold, down 21 percent from a month ago.
This September, there were a total of 91,076 units of second-hand property listed for sale. In comparison, 49,296 units were listed in total in September 2018 and 25,941 units in November 2017. In other words, more and more second-hand housing have become available each year over the past three years, a sign of increasingly fewer home buyers.
3. Poor property sales will in turn trigger debt problems for property companies. The failure of big property companies could spark a disastrous chain reaction.
According to data from Chinese property housing portal zhuge.com, the debt situation for 80 publicly listed property companies reached 6.61 trillion yuan in the first half of 2019, up 10.45 percent from the end of 2018. Of the 80 listed companies, 71 of them were over 10 billion in debt, with the top 20 indebted companies owing over 100 billion yuan. The top 20 indebted companies owed 4.2 trillion yuan in loans, or 63.73 percent of the combined debt of the 80 companies.
Meanwhile, at least 360 housing companies have folded due to debt reasons since the start of 2019, according to mainland media reports. Among the 360 companies was Yinyi Group, a prominent Chinese property company that focuses on real estate development. Yinyi Group’s listed company Yinyi Real Estate once made the list of China’s top 100 property companies for 15 consecutive years.
4. China’s outlook is looking grim given the current situation with Hong Kong and the Sino-U.S. trade negotiations. Should the situation worsen, it would have an impact on the Chinese property market, and the housing bubble is at risk of puncturing.
The Hong Kong government’s recent use of an emergency law to ban the use of masks at protests has caused panic among investors, who fear a deterioration of Hong Kong’s rule of law environment. Investor panic could trigger a fresh round of capital flight, which would be reflected in Hong Kong’s property market. Drops in Hong Kong’s property prices would in turn affect property prices in Shenzhen. Falling property prices in Shenzhen could be compounded by the negative effects of a Sino-U.S. trade war, and this domino effect could pierce the Chinese housing bubble and trigger systemic financial risks.
SinoInsight 2
Recently in Hong Kong, several signs have emerged which indicate that the CCP is continuing with its “judo move” to swing international perception of the Hong Kong protests as part of a larger strategy to quell the demonstrations:
- On Oct. 4, the Kwun Tong MTR station was severely vandalized, with the customer service center burnt. While some local media blamed the arson on protesters, Hong Kong residents analyzed the timings on videos posted by the media and found that the Kwun Tong station was in fact “vandalized” when after it was closed and riot police were on scene.
- On Oct. 5, the Hong Kong government used its colonial-era emergency powers to ban face masks at protests. The move sparked fresh rounds of protests, as well as an uptick in vandalism and arson of PRC-funded businesses, pro-Hong Kong government businesses, and MTR subway stations.
- On Oct. 8, Hong Kong netizens circulated a video of several masked men loitering outside the Sheung Shui MTR station. When a photographer approached them, they shone bright lights at the photographer and raised canisters which resembled pepper sprays. Later during a press conference, a Hong Kong police spokesperson said that plainclothes police officers had been dispatched to the train station to perform their duties. However, the spokesperson refused to clarify if the masked men captured by citizen video footage were police officers.
OUR TAKE
1. The situation in Hong Kong is presently more complex than depicted by the Western mainstream media.
On the one hand, there are protesters greatly angered by the actions of the Hong Kong and CCP governments who have carried out acts of vandalism, arson, and violence. The violence, however, has been directed primarily toward local triad thugs, pro-Beijing supporters, mainland Chinese, and even police officers; cases of indiscriminate violence appear to be few and far between.
On the other hand, the CCP is carrying out propaganda, psychological, and political warfare operations to discredit the anti-extradition bill protests and sway Western perception and support of the protest movement. The questionable developments which we listed above are likely examples of CCP influence operations in play. Without keeping a close ear to the ground and deep knowledge of CCP operations and characteristics, it is virtually impossible to discern whether certain cases of protester violence and vandalism are indeed the responsibility of genuine protesters or the handiwork of the Hong Kong police or CCP agents.
2. If the CCP succeeds in making the case and convincing the world that the Hong Kong protests are engaging in “subversion” and “separatism,” then the United States will be left in an awkward position after it passes the Hong Kong Human Rights and Democracy Act of 2019.
3. Aside from discrediting the Hong Kong protest movement, the CCP’s other goal of using propaganda, psychological, and political warfare operations is to frighten and coerce the West and international financiers into agreeing and looking the other way as the CCP carries out “normalization” in Hong Kong to restore “one country, two systems.”
CCP “normalization” of Hong Kong may not be as bloody or militaristic as the Soviet suppression of the Hungarian Revolution in 1956 or Prague Spring in 1968, i.e. no tanks or soldiers in the streets. There will, however, be blood spilled (not necessarily leading to death), mass arrests, and de facto martial law should the CCP feel comfortable enough in pursuing “normalization.”
4. Businesses, investors, and governments must be warned that any CCP “normalization” of Hong Kong, even one that seems “reasonable” as violence escalates in the city, will not bring back “business as usual” in Hong Kong. Tightened CCP control over Hong Kong means that “rule of law” will exist in name only, and there will be very high levels of political risks for foreign entities operating in Hong Kong.
