Monday, April 28, 2014

AP survey: China's lending bubble a global threat


AP survey: China's lending bubble could threaten US and global economies if not defused


WASHINGTON (AP) -- Just as the global economy has all but recovered from debt-fueled crises in the United States and Europe, economists have a new worry: China. They see a lending bubble there that threatens global growth unless Beijing defuses it.
That's the view that emerges from an Associated Press survey this month of 30 economists. Still, the economists remain optimistic that Beijing's high-stakes drive to reform its economy — the world's second-largest — will bolster Chinese banks, ease the lending bubble and benefit U.S. exporters in the long run.
"They've really got to change the way they do business," said William Cheney, chief economist at John Hancock Asset Management. "But they have a good track record of doing just that. I'm an optimist about their ability to make this transition."
The source of concern is a surge in lending by Chinese banks. The lending was initially encouraged by the government during the 2008 global financial crisis to fuel growth. Big state-owned banks financed construction of homes, railroads and office towers. But much of the lending was directed by local officials for pet projects rather than to meet business needs.
On Monday, the International Monetary Fund issued a warning about China's private debt. It released a report citing "rising vulnerabilities" in China's financial system, including lending outside traditional banks. Lending by that "shadow" banking system now equals one-quarter of China's economy, the report said.
The IMF also pointed to recent defaults in credit card and other debt sold to investors by banks and heavy debts owed by local governments.
If it continues, "this could spark adverse financial market reaction both in China and globally," the IMF said.
The bubble has caused land prices in China to double in five years, according to an estimate by Nomura, a Japanese bank. Outstanding credit surged from 130 percent of the economy in 2008 to 200 percent in 2013, according to Capital Economics, a forecasting firm.
When debt has built up that fast in the past — as in the United States during the housing bubble — financial crises have typically followed.
"That should be setting alarm bells off," said Mark Williams, chief Asia economist at Capital Economics.
When debt finances excessive building, eventually too few people or companies are willing to buy all the houses, apartments and offices. That can send prices sinking and trigger loan defaults by developers and property owners. Banks typically then curtail lending, thereby slowing growth.
Most economists think China's government would bail out its state owned banks and provide enough money so they could continue lending. It would also support any companies whose bankruptcy would threaten growth.
"I don't think anybody important is going to be allowed to go broke," Cheney said.
China's government has adopted a reform program intended to strengthen its financial sector and transform its economy with more consumer spending and less dependence on construction and investment.
The IMF said those efforts could make growth more sustainable and boost consumption. But it said progress "remains incomplete."
Premier Li Keqiang, China's top economic official, promised in March to give market forces a "decisive role" in allocating loans. Days later, the government let a corporate bond default for the first time, rather than bailing out the investors, to encourage more market discipline.
Also that month, China cleared the way for the first five privately owned banks. The government hopes they will lend more to entrepreneurs and private businesses and provide competition for the state-owned giants.
The measures are having some effect. New lending slowed in March. And the expansion of China's money supply rose at its slowest rate since 1997. Home sales in the first quarter declined 5.7 percent from a year earlier.
But there's been a cost to China and the global economy. The economy's growth slowed to 7.4 percent in the first three months of the year, compared with a year ago. That was down from 7.7 percent in last year's fourth quarter. While still far ahead of developed economies such as the United States, that rate was well below the double-digit growth China had enjoyed for decades.
The AP survey collected the views of private, corporate and academic economists on a range of issues. Most said they thought China's slowdown posed a threat to countries that ship huge amounts of commodities — including iron ore and copper — to China. Among them, Canada, Brazil, Indonesia and Australia have already felt the sting.
Sun Wong Sohn, an economics professor at California State University's Smith School of Business, estimated that each percentage point decline in China's growth rate shaved about 0.3 percentage point from global growth.
Consumption accounts for only 55 percent of China's growth, the government said last year. That compares with 70 percent in the United States. But if China's government succeeds in its reforms, it could benefit U.S. companies by enabling more Chinese consumers to buy U.S. goods and services.
"It's what we've been calling on them to do," said Phillip Swagel, an economics professor at the University of Maryland and former Treasury Department official.
Among the economists' other views that emerged from the AP survey:
— The United States would benefit from lifting a government ban on exporting crude oil and promoting more natural gas exports. Oil and gas drilling has boomed in recent years in North Dakota, Pennsylvania and other states, prompting oil companies to call for a lifting of the ban.
— U.S. economic growth and hiring will pick up in the second half of the year. The economy is expected to grow at an annual rate of 3.1 percent from July through December, up from only 2.3 percent in the first half of the year. And the unemployment rate will fall to 6.2 percent by the end of this year, they forecast. The rate is now 6.7 percent.
— Federal Reserve Chair Janet Yellen will manage the unwinding of the Fed's stimulus programs without causing a surge in interest rates or panicking investors. Nearly three-quarters of the economists said they were "somewhat confident" in Yellen's ability to do so. Six were "very confident." Only two said they were "not confident at all."
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AP Business Writer Joe McDonald contributed to this report from Beijing.

Monday, April 21, 2014

Incentives offered for rebuilding


Sunday, April 20, 2014

TO HELP address housing needs in areas hit by last year’s twin calamities, the Housing and Land Use Regulatory Board (HLURB) is offering incentives to developers that will put up socialized housing projects in disaster-stricken areas.
In a recent gathering at the City Sports Club in Cebu Business Park, HLURB commissioner and chief executive officer Antonio M. Bernardo discussed with developers the board’s Incentivized Compliance to Benefit Calamity-Affected Areas.
“These guidelines aim to encourage developers of main subdivision projects to avail themselves of the manners and modes of compliance with Section 18 of UDHA (Urban Development Housing Act) that will benefit areas affected by calamities through the immediate reconstruction of dwelling and shelter, development of socialized housing, and provision of facilities, centers, and basic amenities,” the HLURB order said.
Bernardo said the incentivized compliance will not only help survivors of disasters but will also make it easier for developers to get a license to sell for their main subdivision projects.
Compliance
Before, developers needed to provide outright 20 percent socialized housing compliance upon application for a license to sell for the main subdivision project.
With the HLURB order, Bernardo said developers who will put up projects in calamity areas will only have to put up socialized housing project equivalent to at least five percent of either the total main subdivision area or total main subdivision cost for the initial compliance.
Under Section 18 of R.A. 7279 or the UDHA of 1992, subdivision developers are required to put up socialized housing projects.
The minimum five percent compliance, for example, can be used as a requirement for the issuance of a license to sell for one main subdivision project. If the developer intends to add another five percent, Bernardo said he can use it for the issuance of a license for another subdivision project.
“The five to twenty percent initial compliance may be utilized as initial compliance by more than one main subdivision projects,” Bernardo said.
HLURB regional director Alixes Roy Lopez said areas where developers can put up their socialized projects in Cebu include the northern areas of Medellin, Bogo and Bantayan Island. These areas were severely devastated by super typhoon Yolanda last November.
Bernardo, however, clarified that the developer should complete the 20 percent compliance within the first half of the period of completion of the main subdivision project. Otherwise, corresponding sanctions will follow, which include the suspension of the license to sell of the main subdivision project.
He said developers can also opt to provide educational facilities, health facilities, productivity or livelihood centers in areas affected by calamities as compliance; or they can enter into a joint venture with an HLURB-accredited subsidiary or developer for the production of new socialized housing in calamity affected areas. They can also contribute to an accredited non-government organization for the development of new housing and reconstruction of destroyed or damaged houses.
Accreditation
The incentivized program will also be more open for accreditation.
“A socialized housing developer or an NGO engaged in the development and production of socialized housing units and projects will be exempted from the requirement of 500 housing units built,” stated in the memorandum, providing that the houses are to be built in calamity affected areas.
Under the incentivized procedure, there is no requirement for number of units built to become HLURB-accredited.
Bernardo said HLURB will regularly monitor the developers to guard against the possible failure of socialized housing projects in calamity areas.

Real estate firm sets aside P5B for projects


Sunday, April 20, 2014

REAL estate player Cebu Landmasters Inc. (CLI) is setting aside an initial investment of P5 billion in the next five years to develop an additional 200,000 square meters (sq.m) of floor area for several planned mixed-use developments in Cebu and Cagayan de Oro City.
These new projects include a one-hectare property in the midtown area of Cebu; one-hectare beachfront property in Mactan; a 3,000 sq.m office and commercial building in Cebu Business Park; a 5,000 sq.m condo residential and commercial development in Mandaue; and a 5,000 sq.m housing project in Cagayan de Oro.
“The thrust for our vertical projects will now be more on mixed-use type of development. While for the horizontal projects, we will be building more socialized and economic housing in Cebu and in other areas in Visayas and Mindanao,” said CLI president and chief executive officer Jose Soberano III.
Projects
CLI is looking at expanding in key areas like Cagayan de Oro, Bacolod, Iloilo and Davao. Soberano said they already bought some properties in these areas and Cagayan de Oro will be the company’s first regional expansion.
“The CDO project will be a combination of economic and socialized housing projects,” he said.
Citing industry reports, Soberano said that the country has about 3.5 million units in housing backlog, mostly from the mid to low market segments.
“We are partly addressing the need. We need to augment developments in middle to low market because this is where the huge housing backlog is not only in the province but across the country,” Soberano said.
CLI currently has 12 projects, five of which were already completed. CLI started operations in 2004.
It is set to turn over a total of 1,600 residential house and lot units for various developments including San Jose Maria Villages in Balamban, Minglanilla, Toledo and Talisay in Cebu in the next two years.
Of the 1,600 units, 500 units are socialized housing while the rest are economic and low to mid-end units.
Office projects
Unit prices of socialized housing start at P400,000 while economic housing starts at P800,000 to P1.5 million.
CLI is also set to deliver 120,000 sq.m of floor area in the next three years for its condo and office projects. It will have at least 2,500 total condo units delivered by that time.
On top of the mentioned expansion areas, Soberano said they are also eyeing calamity-stricken areas as potential location for housing development. He identified Leyte, Bohol and Dumaguete.
Soberano attributed the company’s aggressive expansion to the growing demand in housing, supported by the continued boom in the BPO sector, expansion in the middle class segment, strong inflows of overseas remittances and the overall healthy economic condition of the country.
“When the economy improves there is more appetite for more investments,” he said.
Due to the fast takeup of CLI’s Mivesa project in Lahug, Soberano said the five-year development program for the seven-tower condo residential complex will be shortened to a three-year development program.
He said they will likely start selling the units of the 6th building this year. To learn more on our Projects Investment Opportunity, contact us at +639173236123.


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