2014-09-08

Shantytowns Rapidly Expand All Across China

Following the government's announcement that it would Spend More Than $162 Billion on Shantytowns, the number of shantytowns in China has exploded. Anhui had 800,000 households living in shantytowns, but now finds that 1.5 million people households live in shantytowns. There are now 2.7 times more shantytowns than the government planned for with the policy. One reason is the definition of a shantytown has been widened to fit more local development initiatives under the project's banner in the hopes of qualifying them for low interest loans.

In Systematic Fraud and Corruption in Land Sales Threatens Economy, I covered the recent land audit and the uncovering of various methods used by local governments and developers to misuse or abuse the land sale process. With regards to the shantytown project, one developer said:
"When the shantytown reform policy came out, developers are quite happy that this is a government bailout in disguise, just need to detour around the bend, the funds first go to local governments, and then be transferred to the developer."
Shantytown renovation, along with the affordable housing policy, has its risks. These two policies add supply into the market and simultaneously reduce market demand, since a homeowner who loses a home to a tear down is given a replacement by the developer and a homeowner waiting for the affordable housing lottery exits the housing market. These policies will put money in the pockets of developers, but also destroy the private housing market and add more supply into an overburdened market. From the developer's perspective it is far better to get paid by the government up front than risk losses in the private market. The net result will be even more massive oversupply and housing that is built in response to central planning directives, not market demand.

All of this goes to show why China must rebalance. The property market isn't going to disappear and there's still work to be done on those shantytowns, but its role as a driver of economic growth is played out. Local governments and developers see the policy as more of the same, the exact opposite of what the leadership wants. Since the ¥1 trillion in government funds are loans, the total amount of investment in real estate will be multiples of that number. To use Michael Pettis' phrasing, this is not what a “good” Chinese adjustment looks like.

地方棚改项目急速扩容 国开行万亿低息贷款驰援



The rapid expansion of local shed change project

CDB trillion low-interest loans rush to the rescue

Shed over plans to change the local expansion, start trigger level concerns.

"Ministry of Housing is very concerned about the change of policy implementation deviates from the shed, and some local governments did not belong shed some reform projects are included in, blindly development and construction." A source close to the Ministry of Housing to "China Times" reporter revealed that the current commissioned by the Ministry of Housing is preparing to shed some institutions to change the development of research.

Statistics show that only 2014 of the transformation plan, the number of reported throughout the country to 425 million units, 2.7 times the central plan. Central provinces who participated in a project studio to change the person in charge of housing prices Bin (a pseudonym) told reporters that this is the policy in order to win support, it was possible to get low-interest loans.

"There are some developers said that if the project is defined as a direct villages, will not get the CDB funds, so some items will be packaged into the shed to change the project, who edited the story goes, to whom the funds on priority." Said Li Bin because there are special financial support, developers and local governments are highly motivated.

Shed reform project to promote local

As the state has increased the intensity of the shantytowns, the scope of the concept of change is also shed artificially widened.

For example, according to the Housing Department, Anhui statistics, the number of shanty towns of the province had 800,000, plus the intensity and greenhouse change came after the village, including the data updated to 1.5 million.

The original village Bin development projects are projects in the shed before change policies, projects already under construction, but under the district government approval, the project was incorporated into the shed to change. Li Bin told reporters, shed by all levels of government reform project escalation Ministry of Housing, first by the district government to take the lead, the specific operation is out of the team by the district government, the packaging materials to help developers write programs, "such as the villages written slums, because has a long history in need of rehabilitation, and so lead to shabby. "

Government and developers is coveted by CDB 1 trillion of funds, not only low interest loans, and for a long time, a lot of developers replenishment.

"Funds are issued progressively allocated according to each province from the province to the city, the city and then based on parameters such as GDP and population created to divide the county places, usually an area of ​​at least two places, there will be five or six large area places up for a project to develop the CDB 400 million yuan of funds. "Li Bin said that after waiting for funding under the grant, the first to enter the pool of government funds by government redistribution to develop business.

It is reported that Bin district currently resides in the preparations for the start of more than a dozen real estate projects, anchored shed change places have two. Bin development of the project, not only anchored on the shed change, but also the name of the brand new rural construction, commercial banks as well as specialized product support for this loan.

Hubei developers a person involved in the transformation of villages also told reporters that the developers wanted to try to change by the shed, but the premise must have a basic package with the villagers to move back room, but purely commercial development projects are not operational.

A Director of the South China Land and Resources Department told reporters in a massive construction shed reform issued mainly central task of the local government in order to ensure growth is also very positive, from the central to local, in addition to CDB support, as well as financial support financial support.

CDB has been estimated that the country shed reform and development, local governments need to support 2.5 trillion of funds, funding sources, has been considered a major problem faced by the local government.

But in fact, the basis of supporting nominally belong to the scope of municipal planning is funded by financial, rather shed change and change for the project funding is largely derived from the pre-demolition developers, local government matching funds also rely on the land to make money.

"Usually the government demolition subject to change as a shed, but the government had no money, usually to get money to start the demolition of the hands of developers, after Chai Wan, walk auction procedures to sell us, the government should make land money." Bin told reporters.

In addition, the government should support the construction of infrastructure work, there are many of them built by the developer on behalf until after the land transfer, and then pre-construction land shall deduct money directly.

Because funds are ways to solve that, since the second half of 2013, the local shed positive change significantly improved, shed have also changed the target, "expansion", part prefecture-level city expansion to the original count the number of 2-3 times, up to 3.8 times.

Shed change sparked fears rapid expansion, sources close to the Ministry of Housing above told reporters, in addition to first-tier cities are more transparent, some local governments are very strong, and if the village, past the demolition does not move, the government would resort to force to change the name of the shed demolition.

"It's actually a lot of change is shed old city transformation, there are a lot of good house, these houses are demolished good, another 30 years or to dismantle the heavy cover, because it can not meet the needs of the market." Huayuan Property Directors Long Ren pointed out, shed change as "forced evictions."

Boost property market

"Shed reform policy came out, developers are quite happy that this is a government bailout in disguise, just around a bend, the funds would let local governments, and then transferred to the developer by the local government." The developers say.

September 2, listed room rate new lake treasure announcement that given by no more than 5.5 billion yuan fund-raising plan successfully approved for Shanghai two shantytowns. In fact, there are many public housing prices last year launched a financing plan and then withdrawn, and a new lake in the Po reason can be approved, market analysts believe that the aid shed reform policy tilt.

For the government, the project can not only change the shed stimulating investment, but also to improve the housing conditions of residents of affordable housing task to complete, and do not need to spend money on development, land can also earn money, has multiple purposes.

August 4, the State Council issued the "Circular on Further Strengthening shantytowns," which requires strive exceeded 2014 goals and tasks.

"Recently the province has held a meeting on the shed change, convey the superior shantytowns to speed up the construction of the views." Director of Land and Resources Department of the above, told reporters that the new emphasis has shifted from the Department of Housing and protection of housing construction to shed change, local governments can issue bonds to solve the funding problem, mainly through the introduction of social capital, reducing pressure on the government.

The Director further said that currently have advocated monetary subsidies, the government is no longer taking on everything, so go to the market to purchase the relocatees themselves, so you can help developers to inventory.

In Ren seems to change for real estate developers shed most beneficial, developers can take the opportunity to get low-interest loans, and capital returns quickly.

Bin also bluntly, although there is no change for the project studio commercial projects and high profits, but the biggest advantage is low cost funds to support CDB. Especially when normal commercial real estate development funds blocked, they are very willing to participate in the studio to change the project. It is reported that Bin portion of the project is the relocation of residents to move back, and the other part by the government-funded buyback, placed other projects relocated residents, no foreign sales pressure.

And Ren believes 1000000000000 shed change means stimulating investment 4000000000000, has now completed a 9.6 million units of affordable housing, put a 1 trillion, when coupled with 4 trillion in the coming years may appear normal is that all developers of affordable housing to go along with the government, because the fastest capital returns, while the market will be completely phased out.

Statistics show that from 2011 to the end of 2013, the country started shantytowns accumulated 10.84 million, basically completed 6.68 million. This year China will transform all kinds of shantytowns 4.7 million or more, the task of transformation to increase nearly 47% over last year; basically built 4.8 million units, an increase of about 1.2 times.

"Developers and the government are very positive that this is an opportunity to boost the property market." Hunan Real Estate Development Association chief economist Wang Gao told reporters, shed reform project, CDB support 20% -30% of the funds, and the rest by Developers self-financing.

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