2015-01-18

Fear Rises On Concern Land Audit Fallout May Have Only Just Begun in Shenzhen

China's lack of transparency is working against it as investors thoughts turn negative. Gaps in information are filled with concerns of bankruptcy and fraud. While the government has said the property locks are normal, at least some in China are starting to speculate that these actions may be linked to the major property audit conducted in Q3 2014.

SCMP: Property shares hit in panic over developer's sales ban in Shenzhen
Fear and confusion seized investors in China Overseas Land & Investment shares yesterday after reports a project built by the developer in Shenzhen had been blocked from sale by the city's government.

Shares of the mainland developer, controlled by the Ministry of Construction, dropped as much 6.93 per cent when trading began yesterday, the most since March 2013. But the decline narrowed to 2.77 per cent by the close, with the stock finishing at HK$24.55, after the developer issued an announcement denying the report.

"Investors were shocked by the news in the morning. They panicked because they had believed state-owned or big property companies were safer to invest in," said Alfred Lau, an analyst at Bocom International.

Other mainland developers also saw their stocks fall as investors worried that more property firms, including state-backed companies, were under scrutiny.

......In a statement posted on an official microblog yesterday, the Shenzhen authorities said the lock-up was a normal procedure for government-subsidised housing projects and not an indication that China Overseas Land had broken any rules.

Concerns over the sector began when Kaisa Group Holdings, which this month missed a coupon payment on a US$500 million bond, had units in four of its property projects blocked from sale last month.

Chinese coverage of the latest developements: 深圳地产圈危情:传18家房企警告名单 巡视组指示彻查

The article below speculates that the land audit could be behind the recent property lockouts. I covered the land audit earlier this year: How Much Corruption in Land Sales? China Set to Crack Open ¥15 Trillion Can of Worms. Aside from a story such as Land Audit Fallout: Six Officials Investigated for Violations in Shanghai, there hasn't been a lot of fallout from the land audit.

From the article:
August 2014, the State Council, led by 18 departments, began to audit land sales within the 2008-2013 five-year transfer payments, including land acquisition, storage, supply, regulation, arable land protection and enforcement. Relating to financial, land resources, the building housing the multiple systems, the NDRC, forestry and agriculture.

  After two months only, the same as in South fangqi Chen Zhuo Lin, Chairman of Agile has also been involved in a case of sacked officials, was approved to perform the specified residence under surveillance Kunming People's Procuratorate. November, President Kaisa Group Guoying Cheng Jiang Zunyu suspicion of corruption case transferred "lost contact." And these cases are transferred and corruption events.

  As we all know, Shenzhen new land supply in recent years, mainly to urban renewal. These projects mostly located in the heart of downtown, inexpensive location, the commercial value is very high, huge profit margins. The Ministry of Land and Guangdong to "allow the use of an agreement to sell" special policy for the land, but also to many developers find space for rent. In the end, a lot of change for the project is not so transparent, good political and business relations a key to the successful operation of the project. After setting off the land corruption in Longgang District, Shenzhen, started to change old Kaisa will bear the brunt.

  Although the "events and corruption," the statement has not yet been officially confirmed, but since Kaisa outbreak, only from local authorities for the unconventional means the company has seen.

...In this regard, some industry insiders also confirmed Shenzhen, said: "At present, Shenzhen real estate circles jittery, several famous Shenzhen developers have left the country 'to take shelter from the wind', would be involved, some developers not involved change have also gone abroad."

The corruption story has been a bit overblown up until now in its economic impact, not the political impact. There were high profile cases at state owned oil giants, but operations continued. Baijiu prices fell and officials dumped apartments ahead of the property registrations system. However, large property developers such as Kaisa being pushed into bankruptcy over corrupt land deals is another story. If there's any meat to this story, it could be a huge new story and a wildcard for the property market in 2015 since it could mean the audit results are being kept under wraps due to investigations triggered by the audits.

iFeng: 佳兆业事件升级 深圳地产圈反腐“锁盘”成风 (Kaisa Situation Escalates; Shenzhen Locked Building Anti-Corruption Rampant)

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