China Real Estate: Wen Jiabao Vs. Developers (Round N)

After being battered by series of government curbs on the real estate market, developers attempted to fight back by starting a war of words.

10 or more major real estate developers in Guangdong held a press conference.  One of the executive at R&F Properties (2777.HK) told buyers that “large drop in real estate prices is quite simply a wishful thinking”, and by hoping that to happen, buyers will only “miss one chance after another”.  This weirdly echoes the bullish note by the richest man in Hong Kong.  Country Garden (2007.HK) went on and said that the government should “relax”, and Hopson Development (754.HK) hoped that the government can “rely more on market mechanism rather than administrative measures to regulate the market”, whatever it means.

If you are familiar with the history of Hong Kong property market, there was a weird instance where developers protested against government’s intervention.  On 26 May 1994, the British Hong Kong government held land auction, selling two sites on that day after announcing a series of curbing measures (see the chart of property market history).  Representatives from all major real estate developers showed up as if they were going to bid aggressively, but…

The first site being sold that day was sold to a consortium of 12 real estate developers, including Sino Land, Nan Fung, Cheung Kong, Henderson Land, Sun Hung Kai Properties, New World Development, Kerry Properties, Swire Properties, Hang Lung, Paliburg, etc at a price tag of HK$2.04 billion.  The fate of the second site was similar, as it was being sold to more than 10 developers at HK$510 million.  Why did they do that?  They protested against any government intervention.  By forming consortiums and not competing with each other in the auction, the government received 27% less proceed than what the market expected at the time.

Back to China.  As these bunch of developers protested in a press conference, the Premier Wen Jiabao fought back as he toured Zhejiang.  He said the government is “determined to regulate the real estate market as it is important to have a healthy economic and harmonious society.”  He asked governments at all level to bear this responsibility.

Obviously, local governments don’t want to bear this responsibility, and real estate developers are already being squeezed, so they stop buying land, and local governments will then be squeezed as well.

This article originally appeared here: China Real Estate: Wen Jiabao Vs. Developers (Round N)
Also sprach Analyst – World & China Economy, Global Finance, Real Estate

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