If "Chinese Investors Back Away From Global Property Markets" and "China’s Property Market Strains the World," that doesn't bode well for Greenland
A 1/1/19 Wall Street Journal article, Chinese Investors Back Away From Global Property Markets, does not mention Greenland Holding Group, parent of Greenland USA (majority owner of Atlantic Yards/Pacific Park going forward), but it's hard not to think the company's not in the same general boat.
From the article:
And it makes sense for Greenland USA to have sold development leases to three towers in Atlantic Yards/Pacific Park--B12, B13, B15--to TF Cornerstone and The Brodsky Organization, since that raises cash and lowers risk.
Of course, if trends hold, it will be tougher for Greenland to build six towers over the railyards.
Back home, real estate woes
A 12/30/18 New York Times article, Empty Homes and Protests: China’s Property Market Strains the World, explained:
The article cites a cycle of speculation--by both builders and buyers--as well as shifting government policy, which both constricts and encourages ownership. Given limits on taking money out of the country and an unstable stock market, Chinese citizens bank on property ownership--a trend that extends when they move to North America.
An economist's warning
China Change, a U.S.-based website focused on human rights, the rule of law, and civil society in China, offers an unauthorized translation of a 12/16/18 speech by Prof. Xiang Songzuo of Renmin University School of Finance and former chief economist of China Agriculture Bank, delivered during a CEO class at Renmin Business School. It was apparently applauded by the audience but immediately censored over the Chinese internet.
The summary: "Singling out 2018 as the year when China comes to a large shift unprecedented over the past 40 years, the speech can be seen as a landscape survey of Chinese economy, and obliquely, also of politics."
Citing cited internal and external challenges, Xiang observed, "As economy slows, financial risk escalates and shadow banking shrinks rapidly." That threatens corporate debt, including state-owned enterprises. The stock market is in trouble: "only the Wall Street Crash of 1929 can compare to the steep decline that the Chinese stock has experienced this year."
(How's Greenland doing? After peaking in 2015, it has retreated near its historic lows, though its one-year performance has not been a dramatic decline. Update: I should clarify that the 2015 peak regards its initial listing, via a swap with another company, on the Shanghai Stock Exchange. Presumably the earlier prices refer to its precursor.)
"What are our current financial risks?" Ziang asked. "They are hidden, complex, acute, contagious, and malevolent. Structural imbalance are massive, and violations of law and regulations are rampant. There are black swans to prevent, and gray rhinos to stop."
Black swans are the risks you can't see. Gray rhinos are looming problems. Xiang's warning: "The biggest of them is real estate."
"The government said listed companies have spent 1-2 trillions on speculative real estate," he said. "Basically China’s economy is all built on speculation, and everything is over leveraged."
He warned that short-term reforms won't work, and recommended "three essential reforms: tax system, reform in the political structure, and reform in state governance."
From the article:
Chinese investors will likely continue beating a retreat from the world's top commercial real-estate markets in 2019, adding to the downward pressure on prices from rising interest rates.Among the issues: a decline in the Chinese yuan vs. the dollar, domestic policies, and rising interest rates in the United States and Europe. In other words, another sign of the reversal of the buying trend that began in 2014, and which was quite noticeable already by last October.
For years, the increasing flow of Chinese capital, alongside investments from other foreign countries, helped push property values higher. But now, the opposite is happening as Beijing continues its tight restrictions on capital outflows.
And it makes sense for Greenland USA to have sold development leases to three towers in Atlantic Yards/Pacific Park--B12, B13, B15--to TF Cornerstone and The Brodsky Organization, since that raises cash and lowers risk.
Of course, if trends hold, it will be tougher for Greenland to build six towers over the railyards.
Back home, real estate woes
A 12/30/18 New York Times article, Empty Homes and Protests: China’s Property Market Strains the World, explained:
Unwanted apartments are weighing on China’s economy — and, by extension, dragging down growth around the world. Property sales are dropping. Apartments are going unsold. Developers who bet big on continued good times are now staggering under billions of dollars of debt.
...“The property market is the biggest gray rhino,” [economist Xiang Songzuo] said, referring to a term the government has used to describe visibly big problems in the Chinese economy that are disregarded until they start gaining momentum.
China is grappling with an economic slowdown brought on by efforts to curb debt and worsened by the trade fight with the United States. But any solution will have to contend with the country’s property problems. More than one in five apartments in Chinese cities — roughly 65 million — sit unoccupied....Again, Greenland was not mentioned, but, given the size of the company, it's hard to imagine it's not affected.
The article cites a cycle of speculation--by both builders and buyers--as well as shifting government policy, which both constricts and encourages ownership. Given limits on taking money out of the country and an unstable stock market, Chinese citizens bank on property ownership--a trend that extends when they move to North America.
An economist's warning
China Change, a U.S.-based website focused on human rights, the rule of law, and civil society in China, offers an unauthorized translation of a 12/16/18 speech by Prof. Xiang Songzuo of Renmin University School of Finance and former chief economist of China Agriculture Bank, delivered during a CEO class at Renmin Business School. It was apparently applauded by the audience but immediately censored over the Chinese internet.
The summary: "Singling out 2018 as the year when China comes to a large shift unprecedented over the past 40 years, the speech can be seen as a landscape survey of Chinese economy, and obliquely, also of politics."
Citing cited internal and external challenges, Xiang observed, "As economy slows, financial risk escalates and shadow banking shrinks rapidly." That threatens corporate debt, including state-owned enterprises. The stock market is in trouble: "only the Wall Street Crash of 1929 can compare to the steep decline that the Chinese stock has experienced this year."
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| Via Bloomberg |
"What are our current financial risks?" Ziang asked. "They are hidden, complex, acute, contagious, and malevolent. Structural imbalance are massive, and violations of law and regulations are rampant. There are black swans to prevent, and gray rhinos to stop."
Black swans are the risks you can't see. Gray rhinos are looming problems. Xiang's warning: "The biggest of them is real estate."
"The government said listed companies have spent 1-2 trillions on speculative real estate," he said. "Basically China’s economy is all built on speculation, and everything is over leveraged."
He warned that short-term reforms won't work, and recommended "three essential reforms: tax system, reform in the political structure, and reform in state governance."
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