Couples fake divorce or even sacrifice marriage to obtain more property, and developers are happy to throw in extras to keep cash coming in
Bloomberg in Shanghai 24 August 2011
Frank He said he faked a divorce from his wife of 10 years to skirt the central government’s ban on third mortgages and obtain a bank loan for a third property, a 12 million yuan (HK$14.6 million) suburban villa in Shanghai.
“My wife and I love each other, but as long as we can get the mortgage from the bank for the deal, we’ll take it,” said He, a 40-year-old manager at a chemical company. The forged document, which cost the couple 20,000 yuan, helped them get a loan amounting to 60 per cent of the purchase price, he said.
Homebuyers and developers are finding more and more loopholes as they come under pressure from government policies to curb gains in residential prices, such as limits on the number of properties owned.
Builders are not cutting prices, but offering free car parking and attics instead, as they face higher borrowing costs after Standard & Poor’s downgraded their outlook in June.
Their actions may hamper the government’s efforts to prevent a bubble in the housing market. Sales surged 25 per cent in the first seven months from a year earlier and prices climbed in 67 of 70 cities monitored by the government in the first half.
“These are actually price cuts in disguise,” Sun Mingchun, Hong Kong-based economist at Daiwa Securities Capital Markets, said. “Developers are reluctant to offer discounts and are playing games with the government.”
Some sellers are throwing in gardens and basements, according to a Century 21 report in June. In Shanghai, properties with the additional offerings draw 30 per cent more customers to display homes than those without, according to the country’s second-biggest real estate brokerage firm, with 22,000 employees.
Mainland developers are facing a strain on liquidity. Almost 70 per cent said their cash-flow conditions worsened in August from July, independent investment advisory firm CEBM Group said in an August 5 report, citing a monthly survey of real-estate companies in 12 cities. That compared with 22 per cent in July. Cash flow in the first quarter dropped 38.9 billion yuan, the most in at least five years, based on Bloomberg calculations from financial statements of 136 developers listed on the mainland and Hong Kong exchanges.
Developers might have to cut prices to stave off a capital shortage as the government tightens the market further, said Danny Ma, Shanghai-based director of China research for CB Richard Ellis. Home prices rose at the slowest pace in 11 months in July, said SouFun Holdings.
China Overseas Land & Investment, a Hong Kong-listed developer controlled by the construction ministry, said it reduced prices in four projects across the mainland this year by 10 per cent to 15 per cent from a year earlier.
The developer was not throwing in incentives and had no plans to do so, said Yang Haisong, the company’s Hong Kong-based head of investor relations. “Tightening policies have already had an impact on the physical market, especially for top-tier cities,” Yang said. “We were taking flexible launches and accelerating leftover projects.”
Some couples who are not willing to pay for the forged documents to fake a divorce go to the extreme of getting an official one, said Qian Yusheng, an agent for Century 21 in Shanghai. Some agents also help with forged marriage licences and documents to prove local residency and allow potential buyers to purchase more properties, said Qian. He said he did not engage in what he called these common practices in the industry.
The home ownership mania stems, in part, from the fact that a private residential property market has only existed for 13 years on the mainland, a period during which incomes have surged. The latest five-year plan, running until 2015, aims to raise incomes by an annual average of more than 7 per cent.
“Traditionally people in east Asia all have a passion to possess properties,” said Liu Li-gang, a Hong Kong-based economist at ANZ bank. “But economic theories also apply here. In eastern Asian countries we have less land with a high intensity of people. Properties are a scarce commodity, so if you enter the market early, there is a bigger chance of high returns later.”
There also are fewer options on the mainland where people can park their money. The Shanghai Composite Index has declined 17 per cent from a November high, and inflation is running at 6.5 per cent, outstripping the one-year deposit rate of 3.5 per cent.
“Real estate is the biggest industry in China. What other business can get better returns than speculating on property?” said Larry Hu, a Shanghai-based director in the residential department of Knight Frank. “People keep cash on hand and are really fearful of inflation.”
Small and medium-sized developers are giving away free space such as terraces to avoid cutting prices. Such areas are not included in building plans submitted to the government and are not booked as expenses during construction, according to Lu Qilin, a senior research manager at Deo Volente Realty, Shanghai’s third-biggest property brokerage.
That means that when demand wanes, developers can stop charging for the space, luring buyers with extras that would not eat into balance sheets, he said.
Free space offered for storage, or a garden, typically adds as much as 20 square metres (215 square feet), while attics and basements amount to as much as 70 square metres, Century 21 said. Parking spaces were between 20 and 30 square metres. “Developers don’t really want to directly cut prices because it’s not only bad for their image, but there are also risks that previous buyers would come back and ask for the same discounts or even return those homes,” said Ma. “They would rather start with these soft marketing strategies.”
Apart from freebies, developers are also helping buyers secure financing. Pan Hong Property Group provides bank guarantees for buyers and in some cases offers loans with interest rates similar to those offered at financial companies, according to executive chairman Wong Lam Ping.
Beijing this year raised the minimum down payment for second- home purchases, and about 40 cities including Beijing and Shanghai started limiting the number of apartments to two for each family, and one for non-locals. The central bank has increased interest rates five times since October.
In September, the government asked commercial banks to stop offering loans to third-home buyers and extended a 30 per cent down-payment requirement for all first-home buyers.
Shui On Land, a Shanghai-based developer of luxury apartments near the city’s Xintiandi bar and restaurant district, extended the deadline for down payments by an additional one to two months this year, chief executive Freddy Lee said.
“Everybody uses marketing techniques,” he said. “The market is just more competitive right now.”
Along the eastern coastal Zhejiang province, some homebuyers are buying properties through the companies they own, because the restrictions only apply to families, not businesses, according to Centaline Property Agency, China’s biggest property brokerage.
“You need to understand that this is China,” said Knight Frank’s Hu. “Whenever the government has a policy, people will find a counter strategy.”
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Buyers, sellers get around curbs
Couples fake divorce or even sacrifice marriage to obtain more property, and developers are happy to throw in extras to keep cash coming in
Bloomberg in Shanghai
24 August 2011
Frank He said he faked a divorce from his wife of 10 years to skirt the central government’s ban on third mortgages and obtain a bank loan for a third property, a 12 million yuan (HK$14.6 million) suburban villa in Shanghai.
“My wife and I love each other, but as long as we can get the mortgage from the bank for the deal, we’ll take it,” said He, a 40-year-old manager at a chemical company. The forged document, which cost the couple 20,000 yuan, helped them get a loan amounting to 60 per cent of the purchase price, he said.
Homebuyers and developers are finding more and more loopholes as they come under pressure from government policies to curb gains in residential prices, such as limits on the number of properties owned.
Builders are not cutting prices, but offering free car parking and attics instead, as they face higher borrowing costs after Standard & Poor’s downgraded their outlook in June.
Their actions may hamper the government’s efforts to prevent a bubble in the housing market. Sales surged 25 per cent in the first seven months from a year earlier and prices climbed in 67 of 70 cities monitored by the government in the first half.
“These are actually price cuts in disguise,” Sun Mingchun, Hong Kong-based economist at Daiwa Securities Capital Markets, said. “Developers are reluctant to offer discounts and are playing games with the government.”
Some sellers are throwing in gardens and basements, according to a Century 21 report in June. In Shanghai, properties with the additional offerings draw 30 per cent more customers to display homes than those without, according to the country’s second-biggest real estate brokerage firm, with 22,000 employees.
Mainland developers are facing a strain on liquidity. Almost 70 per cent said their cash-flow conditions worsened in August from July, independent investment advisory firm CEBM Group said in an August 5 report, citing a monthly survey of real-estate companies in 12 cities. That compared with 22 per cent in July. Cash flow in the first quarter dropped 38.9 billion yuan, the most in at least five years, based on Bloomberg calculations from financial statements of 136 developers listed on the mainland and Hong Kong exchanges.
Developers might have to cut prices to stave off a capital shortage as the government tightens the market further, said Danny Ma, Shanghai-based director of China research for CB Richard Ellis. Home prices rose at the slowest pace in 11 months in July, said SouFun Holdings.
China Overseas Land & Investment, a Hong Kong-listed developer controlled by the construction ministry, said it reduced prices in four projects across the mainland this year by 10 per cent to 15 per cent from a year earlier.
The developer was not throwing in incentives and had no plans to do so, said Yang Haisong, the company’s Hong Kong-based head of investor relations. “Tightening policies have already had an impact on the physical market, especially for top-tier cities,” Yang said. “We were taking flexible launches and accelerating leftover projects.”
Some couples who are not willing to pay for the forged documents to fake a divorce go to the extreme of getting an official one, said Qian Yusheng, an agent for Century 21 in Shanghai. Some agents also help with forged marriage licences and documents to prove local residency and allow potential buyers to purchase more properties, said Qian. He said he did not engage in what he called these common practices in the industry.
The home ownership mania stems, in part, from the fact that a private residential property market has only existed for 13 years on the mainland, a period during which incomes have surged. The latest five-year plan, running until 2015, aims to raise incomes by an annual average of more than 7 per cent.
“Traditionally people in east Asia all have a passion to possess properties,” said Liu Li-gang, a Hong Kong-based economist at ANZ bank. “But economic theories also apply here. In eastern Asian countries we have less land with a high intensity of people. Properties are a scarce commodity, so if you enter the market early, there is a bigger chance of high returns later.”
There also are fewer options on the mainland where people can park their money. The Shanghai Composite Index has declined 17 per cent from a November high, and inflation is running at 6.5 per cent, outstripping the one-year deposit rate of 3.5 per cent.
“Real estate is the biggest industry in China. What other business can get better returns than speculating on property?” said Larry Hu, a Shanghai-based director in the residential department of Knight Frank. “People keep cash on hand and are really fearful of inflation.”
Small and medium-sized developers are giving away free space such as terraces to avoid cutting prices. Such areas are not included in building plans submitted to the government and are not booked as expenses during construction, according to Lu Qilin, a senior research manager at Deo Volente Realty, Shanghai’s third-biggest property brokerage.
That means that when demand wanes, developers can stop charging for the space, luring buyers with extras that would not eat into balance sheets, he said.
Free space offered for storage, or a garden, typically adds as much as 20 square metres (215 square feet), while attics and basements amount to as much as 70 square metres, Century 21 said. Parking spaces were between 20 and 30 square metres. “Developers don’t really want to directly cut prices because it’s not only bad for their image, but there are also risks that previous buyers would come back and ask for the same discounts or even return those homes,” said Ma. “They would rather start with these soft marketing strategies.”
Apart from freebies, developers are also helping buyers secure financing. Pan Hong Property Group provides bank guarantees for buyers and in some cases offers loans with interest rates similar to those offered at financial companies, according to executive chairman Wong Lam Ping.
Beijing this year raised the minimum down payment for second- home purchases, and about 40 cities including Beijing and Shanghai started limiting the number of apartments to two for each family, and one for non-locals. The central bank has increased interest rates five times since October.
In September, the government asked commercial banks to stop offering loans to third-home buyers and extended a 30 per cent down-payment requirement for all first-home buyers.
Shui On Land, a Shanghai-based developer of luxury apartments near the city’s Xintiandi bar and restaurant district, extended the deadline for down payments by an additional one to two months this year, chief executive Freddy Lee said.
“Everybody uses marketing techniques,” he said. “The market is just more competitive right now.”
Along the eastern coastal Zhejiang province, some homebuyers are buying properties through the companies they own, because the restrictions only apply to families, not businesses, according to Centaline Property Agency, China’s biggest property brokerage.
“You need to understand that this is China,” said Knight Frank’s Hu. “Whenever the government has a policy, people will find a counter strategy.”
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