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Their Choice Now Is, How Do I Unravel My Holdings Without Taking A Bath?

A report from the Wall Street Journal. “In China, a crowd of startups is looking to cash in on a hot real-estate market by disrupting the way apartments are rented. In some ways, their business model resembles that of U.S. office-space startup WeWork, but applied to residential housing, said James MacDonald, head of Savills China research. Also like WeWork, many present themselves as technology companies, the argument being that they use mobile apps to manage their dealings with tenants and partners.”

“Apartment operators also commonly arrange loans to help tenants pay the rent. The money is typically lent by banks or online lenders for 12 or 24 months, and goes to the startup, which uses it to cover renovations, marketing and other business needs. Individual renters repay the lender, usually with no interest—that cost is borne by the apartment operators, who also guarantee the loans.”

“One potential pitfall of working through a middleman: Financial trouble for the apartment operator can mean eviction for the tenant. Young people forced out of their apartments have held protests in cities including Hangzhou, Nanjing and Xi’an over the past 18 months, but have mostly had little recourse. Hu Jinghui, chairman of the China Alliance of Real Estate Agencies, estimates that more than 70 Chinese apartment operators that managed more than 500,000 apartment units have run into financial trouble since 2017.”

“Q&K International Group Ltd. , one of China’s largest apartment operators, went public in the U.S. in November, listing on Nasdaq after raising $45.9 million. Describing its mission as ‘providing homes for China’s young people,’ the company manages roughly 100,000 units in major cities, carrying an average rent of less than 2,000 yuan ($284) a month. More than half of occupied rental units are paid for with rent-installment loans, with annual interest rates—which the company pays—of 4.75% to 8.5%.”

“It doesn’t add up to profit: For the nine months to June 30 Q&K reported a net loss of 373.2 million yuan ($53 million), on 897.9 million yuan in revenue. Beijing Haoyuan Hengye Real Estate Brokerage Co. at its peak managed about 100,000 apartment units, and many of its tenants had rental loan arrangements. Late last year, Haoyuan ran into cash-flow problems, with renovation costs high and rental income insufficient to meet its obligations to landlords. Tens of thousands of renters were evicted in October 2018, even though most hadn’t defaulted.”

The New York Times. “China’s companies racked up some towering bills as they expanded, and the world’s investors and lenders rushed to offer them even more money. Now the bills are coming due, and a growing number of Chinese companies can’t pay up, in a sign that the world’s No. 2 economy is feeling the stress from its worst slowdown in nearly three decades.”

“Two high-profile companies — a giant government-run trading firm and a conglomerate backed by China’s most distinguished university — are the latest to join a long list of Chinese businesses that have run short of cash when it was time to pay back their debts. Chinese corporate borrowers have defaulted on nearly $20 billion in loans this year.”

“Once rare, defaults in China are rising. The value of loans on which Chinese companies have defaulted has surpassed the total for 2018. ‘This is not over yet,’ said Christopher Lee, a China credit specialist at S&P Global. ‘We are expecting defaults to rise. There are many other companies that are operating in a very difficult environment.'”

From Bloomberg. “A major Chinese commodities trader became the biggest dollar bond defaulter among the nation’s state-owned companies in two decades, in a moment of reckoning for Beijing as it struggles to contain credit risk in a weakening economy. Tewoo Group Corp. announced results of its unprecedented debt restructuring, which saw a majority of its investors accepting heavy losses. This is expected to reshape investors’ perceptions about government-owned borrowers whose identity has for years offered a relatively strong sense of security.”

“It’s also seen offering a road-map for resolving similar debt crises in the future as the prospect of more failures by state-backed firms looms. The one-time Fortune Global 500 company from the northern port city of Tianjin said dollar bond investors representing 57% of the the total $1.25 billion have agreed to be paid just 37 to 67 cents on the dollar, depending on the maturity of the debt. Bondholders representing 22.6% of these bonds voted to exchange their debt for new bonds with sharply lower coupons to be issued by Tewoo’s offshore debt manager, a state asset manager from Tianjin.”

“‘This is one form of default based on our definition,’ said Ivan Chung, a Hong Kong-based analyst at Moody’s Investors Service, noting that the debt revamp has resulted in losses for investors.”

The Epoch Times. “In China, abalone is served at fancy banquets and sold at high prices in retail markets. But the situation has changed as abalone prices have dropped significantly since last year due to a slowing economy, overproduction and pollution. Overproduction of abalone has become a problem in recent years because local governments have encouraged many residents to engage in abalone farming, according to Li Lianpao, a former representative of the People’s Congress of Shishi City, Fujian Province.”

“Chinese agricultural researcher Mr. Yan told The Epoch Times in a Dec. 5 interview that the impact of the economic slowdown is the main reason for the abalone price drop in China. ‘China is currently in an economic depression, and consumer spending is declining. As a high-end commodity, abalone certainly cannot sell well,’ he said.”

“Chinese economist He Junzheng, a dissident who was one of the student leaders in the pro-democracy movement in Hunan Province in 1989, agrees with Yan’s analysis. ‘Many commodities [sellers] in China are cutting prices this year, including daily necessities,’ He said. ‘If you look at the price drops on Taobao [China’s equivalent of Amazon], many products are selling at 50 percent discount compared to previous prices. This is because China’s economic growth is suddenly coming to a halt. These sellers need to liquidate their assets to make preparations for the next year.'”

“Li Lianpao, the former representative of the People’s Congress, made critical remarks about China’s overfishing problem and controversial practices used in fish farming industries to boost production. ‘Nowadays people crave quick profits and disregard basic rules,’ Li said.”

The Globe and Mail. “Government policies aimed at reducing speculation in Vancouver’s property market have worked to curb foreign buying and speculative demand. That was merely part one, says high-profile immigration lawyer and analyst, Richard Kurland, who’s been studying the impact of those policies. Mr. Kurland says that people holding high-end properties who haven’t been transparent about worldwide income may choose to unload those properties instead of face an audit, bringing more supply onto the market.”

“‘That’s how you get these multi-million dollar homes that are barely occupied,’ he says. ‘Under the old way, if you had six of them, you declare each one as your personal residence. For each one you say, ‘I’m resident here for income tax purposes and I don’t have to pay capital gains,’ when in fact, none of the above is true. They are not income tax residents, so they [are not allowed] a capital gains exemption and it’s not their principal residence. But no one checked. It was an honour system. But no longer.'”

“‘So the multiple property holds are now all subject to this new game. Their choice now is, ‘How do I unravel my holdings without taking a bath?'”

“As to whether Hong Kong’s conflict with Beijing could cause passport holders in that city to return to Vancouver – and trigger another wave of property buying – Mr. Kurland doesn’t see it happening any time soon. He examined applications from Hong Kong for different kinds of sponsorships, work permits and study permits, and he couldn’t find any increases in people applying for entry.”

“‘It was zero, across the board, and the data was as current as September,’” he says. ‘I was flabbergasted. They are not coming. They aren’t even applying to come here.'”

The Vancouver Sun. “Owners of single-family homes in Metro Vancouver are likely to be the most disappointed when B.C. Assessment Authority valuations are sent out in the new year. For example, owners of single-family homes in Vancouver, Burnaby, and the North Shore will likely see their property value fall between 10 and 15 per cent. Condo owners could see their values fall by as much as 15 per cent, although some condo values will hold up.”

“This will come as no surprise to market watchers who have seen hundreds of thousands of dollars shaved off the value of homes sold in Vancouver, especially among single-family homeowners who bought at the peak of the market in the spring 2016 and are selling now. The fall in valuation will also impact some owners’ personal finances, as the assessed value of a home is used by banks and credit unions to determine how much owners can borrow against their property, and will generally deplete owners’ equity.”

This Post Has 52 Comments
  1. ‘‘China is currently in an economic depression, and consumer spending is declining. As a high-end commodity, abalone certainly cannot sell well’

    ‘Many commodities [sellers] in China are cutting prices this year, including daily necessities…If you look at the price drops on Taobao [China’s equivalent of Amazon], many products are selling at 50 percent discount compared to previous prices. This is because China’s economic growth is suddenly coming to a halt. These sellers need to liquidate their assets to make preparations for the next year’

    Lot of big news going on. I may need to post more links per day or risk leaving stuff by the way side.

    As this link demonstrates, The Epoch Times will publish talk of a depression in China. The NYT, Bloomberg, WSJ would never do such a thing unless it became undeniable. The globalist have always put a big shine on everything China. You never see a photo of Xi where his hair, suit and shoes aren’t perfect. Curious isn’t it? Cuz everybody has a bad hair day.

      1. Lots of aquaculture in China has the ducks/chickens shitting directly into the water. I’m not sure how often those fish are exported, however.

          1. I was there when they got caught selling trout from inland fish farms as salmon. Which answered a question I’d had for a while about why don’t people ever use good trout for sushi? Turns out they did…they just didn’t know it.

  2. ‘This is one form of default based on our definition,’ said Ivan Chung, a Hong Kong-based analyst at Moody’s Investors Service, noting that the debt revamp has resulted in losses for investors’

    Yep, S&P has called 100% of the defaults after they happen.

      1. I believe it’s local governments. Many years ago when the Greece crisis was bubbling, a Chinese guy said they had “1,000 Greece’s” there. What made the thing work for a while was these governments would sell land to developers.

  3. ‘This will come as no surprise to market watchers who have seen hundreds of thousands of dollars shaved off the value of homes sold in Vancouver, especially among single-family homeowners who bought at the peak of the market in the spring 2016 and are selling now. The fall in valuation will also impact some owners’ personal finances’

    But they’re money launderers, losing 30% can’t cause any harm, right? At least the Sun gets the peak year right.

  4. – Debt growth in China has exceeded the West by a large margin. Think “Ghost Cities.” However, the laws of economics still apply (yes, even to/especially to centrally-planned, command economies). They’re credit “cycles”, not permanently high plateaus. Take heed Fed.

    – The Epoch Times is the closest thing to “real news” I know of. Anything MSM is propaganda for the left. Struth.

    – “MSM = Democratic operatives with bylines.”

    1. I don’t think it’s “the left” cuz I know people who voted for Obama twice and also voted for Trump and will again. For the most part they consider themselves liberal. So the whole left right thing is more convoluted than ever.

      Somebody was b!tchin’ about the ET the other day. OK, were supposed to look the other way about China’s oppression, torture, assassinations. They spy, try to knuckle down any speech or event they see as negative: all over the world – see Europe. But these ET publishers! They are crazy out there by covering the torture, etc.

      1. From Wikipedia …

        The Epoch Times was founded in 2000 by John Tang and other Chinese Americans associated with the spiritual practice Falun Gong.[18] The founders said they were responding to censorship inside China and a lack of international understanding about the Chinese government’s repression of Falun Gong.[19][20] In May 2000, the paper was first published in the Chinese language in New York, with the web launch in August 2000.[21]
        By 2003, The Epoch Times website and group of newspapers had grown into one of the largest Chinese-language news sites and newspaper groups outside China, with local editions in the U.S., Canada, Australia, New Zealand, Japan, Indonesia, Taiwan, Hong Kong, and major Western European countries.[22] The first English edition launched online in 2003, followed by the New York print edition in 2004.[21]
        In 2000, ten of The Epoch Times correspondents were imprisoned in China, but current staff of the Chinese-language edition work in Hong Kong.[23]
        According to NBC News, “little is publicly known about the precise ownership, origins or influences of The Epoch Times,” and it is loosely organized into several regional tax free non-profits, under the umbrella of the Epoch Media Group, together with New Tang Dynasty Television.[7] Its revenue in 2017 was US$8.1 million, and reported a spending of US$7.2 million.

        1. I used to post some NTDT links. It was some of the best info coming out on Chinese RE. I haven’t seen them in a while. Long time readers will remember I had a post or two every week on China. Then Xi told the media “no more unhappy reporting” and it ceased to exist, except for the occasional Bloomberg, Reuters or WSJ report. I guess these bond blowups are too much for even the NYT to ignore.

        2. FWIW here’s what Wikipedia says about Falun Gong …

          Falun Gong (UK: /ˌfɑːlʊn ˈɡɒŋ, ˌfæl-, – ˈɡʊŋ/, US: /- ˈɡɔːŋ/)[1] or Falun Dafa (/ˈdɑːfə/; Standard Mandarin Chinese: [fàlwə̌n tâfà]; literally, “Dharma Wheel Practice” or “Law Wheel Practice”) is a Chinese religious practice that combines meditation and qigong exercises with a moral philosophy centered on the tenets of truthfulness, compassion, and forbearance (Chinese: 真、善、忍). The practice emphasizes morality and the cultivation of virtue, and identifies as a qigong practice of the Buddhist school, though its teachings also incorporate elements drawn from Taoist traditions. Through moral rectitude and the practice of meditation, practitioners of Falun Gong aspire to eliminate attachments, and ultimately to achieve spiritual enlightenment.
          Falun Gong originated and was first taught publicly in northeastern China in 1992 by Li Hongzhi. It emerged toward the end of China’s “qigong boom”—a period that saw a proliferation of similar practices of meditation, slow-moving energy exercises and regulated breathing. It differs from other qigong schools in its absence of fees or formal membership, lack of daily rituals of worship, its greater emphasis on morality, and the theological nature of its teachings. Western academics have described Falun Gong as a qigong discipline, a “spiritual movement”, a “cultivation system” in the tradition of Chinese antiquity, or as a form of Chinese religion.
          The practice initially enjoyed support from Chinese officialdom, but by the mid to late 1990s, the Communist Party and public security organizations increasingly viewed Falun Gong as a potential threat due to its size, independence from the state, and spiritual teachings. By 1999, government estimates placed the number of Falun Gong practitioners at 70 million.[2] During that time, negative coverage of Falun Gong began to appear in the state-run press, and practitioners usually responded by picketing the source involved. Most of the time, the practitioners succeeded, but controversy and tension continued to build. The scale of protests grew until April 1999, when over 10,000 Falun Gong practitioners gathered near the central government compound in Beijing to request legal recognition and freedom from state interference. This demonstration is widely seen as catalyzing the persecution that followed.
          On 20 July 1999, the Communist Party leadership initiated a nationwide crackdown and multifaceted propaganda campaign intended to eradicate the practice. It blocked Internet access to websites that mention Falun Gong, and in October 1999 it declared Falun Gong a “heretical organization” that threatened social stability. Falun Gong practitioners in China are reportedly subject to a wide range of human rights abuses: hundreds of thousands are estimated to have been imprisoned extrajudicially,[3] and practitioners in detention are subject to forced labor, psychiatric abuse, torture, and other coercive methods of thought reform at the hands of Chinese authorities.[4] As of 2009, human rights groups estimated that at least 2,000 Falun Gong practitioners had died as a result of abuse in custody.[5] One observer reported that tens of thousands may have been killed to supply China’s organ transplant industry (see Organ harvesting from Falun Gong practitioners in China).[6][7] In the years since the persecution began, Falun Gong practitioners have become active in advocating for greater human rights in China.
          Falun Gong founder Li Hongzhi has lived in New York City since 1996, and Falun Gong has a sizable global constituency. Inside China, estimates suggest that tens of millions continued to practice Falun Gong in spite of the persecution.[8][9][10] Hundreds of thousands are estimated to practice Falun Gong outside China in over 70 countries worldwide.[11

          1. The Chinese Communist Party, like their ideological cousins in the Democratic Party, bear a pathological hatred for anyone espousing moral rectitude and living a virtuous, self-sufficient life.

          2. a pathological hatred for anyone espousing moral rectitude and living a virtuous, self-sufficient life

            In the end I don’t think they really mind rectitude and virtue as long as it minds its own business. But self sufficiency is always a threat to collectivists.

          3. In the end I don’t think they really mind rectitude and virtue as long as it minds its own business.

            I disagree. The impeachment hearings prove anew that to be a Democrat requires a seriously defective moral compass. Moral, decent people are repelled by corruption, when that is the DNC’s entire reason for being. Collectivist ideologies consist of state-sponsored theft from the productive to “redistribute the wealth” to the parasites and n’re-do-wells that comprise the mass base of every collectivist movement or party, e.g. the Democrats. Good people instinctively oppose such theft, which makes them a threat and obstacle to the collectivists. “Minding your own business” is never going to keep you from coming to the malignant attention of the collectivists. On the other hand, having the will and means to defend what’s yours, thanks to the 2nd Amendment, might cause the collectivists to think twice before coming for the kulaks’ wealth and property.

          4. seriously defective moral compass.

            I think Carl was giving a view of life in China. Other than that, yes the wielding of some sort of Morality battle axe by the amoral is quite the spectacle. A deception.

  5. “In some ways, their business model resembles that of U.S. office-space startup WeWork, but applied to residential housing, said James MacDonald, head of Savills China research. Also like WeWork, many present themselves as technology companies, the argument being that they use mobile apps to manage their dealings with tenants and partners.”

    As long as the easy money keeps pouring in, this should work out just fine!

      1. When did Hollyweird start celebrating grifters and crooks? “Growing Up Gotti” openly celebrates and embraces violent criminals.

  6. “This will come as no surprise to market watchers who have seen hundreds of thousands of dollars shaved off the value of homes sold in Vancouver, especially among single-family homeowners who bought at the peak of the market in the spring 2016 and are selling now. ”

    Is this referring to individual homes losing hundreds of thousands of dollars in value? Certainly the aggregate market value loss is in the millions or billions of dollars.

  7. And the good news is …

    Americans’ Credit Card Debt Poised to Reach 10-Year High

    😁

    https://finance.yahoo.com/news/americans-souring-credit-card-debt-110000412.html

    (snip snip snip)

    “As lenders sign up more people for credit cards, the newest borrowers are increasingly falling behind on their bills. Accounts opened in recent years have been souring at faster clips than prior years, suggesting that more new borrowers are struggling to keep up with their minimum payments. For instance, 5.4% of credit cards originated in 2018 were delinquent within nine months, up from 4.5% the year before.”

    “… more new borrowers are struggling to keep up with their minimum payments.”

    Minimum payments. These pukes cannot keep up with their minimum payments. What a bunch of broke-assed losers.

    1. Happened to listen to a piece on NPR radio coming in this morning.

      Apparently, *sub-prime* loans for *used*!!! cars are very popular.

      Story was about gentlemen in NYC who *thought* he was paying $10K for a used car, but the actual price was somewhere around $27K when all the contractual fine print was factored in.

      I believe the interest rate was somewhere around 27%(?) [going from memory]

      Authors comment: Does the mafia even charge that much?

      He was sued by lending company and lost.

      What’s next? Short term loans to buy groceries?

      Lot more people out there in a world of hurt than many (including me) realize.

      1. One of the last honest looks at mortgage borrowers indicated that a majority of them are doing cash out refi’s just to make their mortgage payments.

        Lesson: Don’t double your shelter cost by buying a house at a grossly inflated price. Rent it for half the monthly cost. Buy it later after prices crater for 70% less.

        Southborough, MA Housing Prices Crater 10% YOY As Debt Burdened Boston Homeowner Defaults Balloon

        https://www.movoto.com/southborough-ma/market-trends/

      1. Ditto Ford and Dodge. And if you drive past a Toyota, Nissan or Honda dealership, they too have trucks and SUV’s too. KIA and Hyundai don’t have pickups, but they have plenty SUV models.

    2. “… 5.4% of credit cards originated in 2018 were delinquent within nine months”

      To paraphrase a comment I just made elsewhere, if over 5% of the cards you originated are delinquent within nine months, you’re doing something wrong.*

      * Exception: if you’re Mr Banker, this is considered doing it right!

  8. China could be in a full-blown depression and the MSM would continue to parrot the 6% economic growth forecast. They wouldn’t want to risk panicking the herd!

    1. Some folks I know in the PRC are having trouble raising money to cover their debts. Business people with Chinese Characteristics… very leveraged.

      Plus the cost of food and gasoline have gone up huge amounts thanks to currency devaluation, tariffs on North American energy/agro, and swine flu.

      Then again, I never knew anyone in China who routinely got a 10% annual real raise. But Bloomberg and others parrot that lie.

  9. On the afternoon of April 21, 1836, following the battle of the Alamo, vengeful Texans attacked Mexican General Santa Anna’s camp near Lynchburg Ferry. The Mexican army was taken by surprise, and the Battle of San Jacinto was essentially over after 18 minutes. During the fighting, many of the Texian soldiers repeatedly cried “Remember the Alamo!” as they slaughtered fleeing Mexican troops. History records that the Mexican troops who fought back against the onslaught shouted in response: “Los agentes inmobiliarios son mentirosos!” (Realtors are liars!)

    1. In a first for astronomers studying worlds beyond our solar system, data from the Hubble Space Telescope have revealed water vapor in the atmosphere of an Earth-size planet. Although this exoplanet orbits a star that is smaller than our sun, it falls within what’s known as the star’s habitable zone, the range of orbital distances where it would be warm enough for liquid water to exist on a planet’s surface. Even more shocking to the astronomers was captured photographs of what appeared to be remnants of ancient civilization with rock formations spelling out “Realtors are liars” proving that another knowledgeable life form existed beyond planet earth.

  10. “How do I unravel my holdings without taking a bath?”

    Let taxpayers pay for it?

    Approaching 60% cash over here. When’s the bloodbath? I’d like to get it scheduled on my Outlook calendar.

    1. It’s going to be a good 5 years before there are any “deals” out there, if history is any indication.

      1. Prices fell 40% coast to coast in 18 months during the last minor correction…. and they never bottomed.

        This one? Shouldn’t take more than 24 months….. the difference this time is prices are falling further and there is no rebound…. Just a ball bouncing down the stairs.

        Bonita Springs, FL Housing Prices Crater 10% YOY As Gulf Coast Housing Market Turns Toxic On Rampant Mortgage Fraud

        https://www.zillow.com/bonita-springs-fl-34134/home-values/

        *Select price from dropdown menu on first chart

        As a noted economist said so eloquently, “A house is a rapidly depreciating asset that empties your wallet every day you own it. Rent a house for half the monthly cost of buying it.”

      2. MarketWatch had an article today that predicted one more year of growth and recession after that. I’m inclined to believe it. My guess is Trump will try to get the economy to limp to the election, but may not make it. This is what happened in 2008. Plan accordingly.

        1. So now we’re on a 12 year cycle…exactly 3 presidential elections. But it doesn’t really want to be that long…interesting to watch the struggle play out…

          1. now we’re on a 12 year cycle

            It’s a lot like cruising on the Great Lakes or maybe the St. Lawrence River. There might be a fair wind producing 1 to 2 foot waves. That’s a cycle. Then you cross paths with a big Chinese tanker breaking all the laws producing a 10 ft bow wave. God help you if your hatches are open. That’s not just a cycle.

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