Shanghai Condo Buzz, Of The Illegal Kind
By Charles Moure
I just returned from a couple of weeks in Shanghai, where illegal condo "sales" seems to be the talk of the ex-pat town. Seems a common trick of Chinese condo developers is to "sell" large numbers of their condos to their own companies/individuals, set up as "straw men." This allows the developer to claim 90% occupancy and to show potential buyers inflated prices purportedly paid for the condos. The Shanghai Housing and Land Administrative Bureau is now on to this trick and is investigating. And it is not just small players getting caught up in this net.
The Shanghai Daily did an article on how three developers and one real estate agency are being investigated for this, including Tomeson Group, Ltd., the developer of the Tomson Riviera, the site of China's highest priced condominium ever sold:
Tomson Riviera, located in the heartland of the Lujiazui Finance and Trade Zone of Pudong New Area, is being quizzed after reportedly selling three of its apartments at 110,000 yuan (14,400 U.S. dollar) to 120,000 yuan per square meter and then cancelling all deals.
* * * *
In August, Tomson sold one apartment for 130 million yuan, or 130,000 yuan per square meter, the highest price for a condominium on China's mainland. The Riviera project has been suspended by the bureau.
Shares of Hong Kong-listed Tomson were suspended Wednesday afternoon, pending an announcement "in relation to price-sensitive information."
Shanghai Jiahe Real Estate Co. Lt.d, is "accused of buying 204 apartments of its own 276 apartments" and Shanghai King Wai Holdings Co. Ltd. is "suspected to have cancelled 300 sales contracts of its property in an attempt to stall sales."
The China Daily states that "Shanghai's Oriental Morning Post quoted a sales manager for Kingwai City Oasis, another developer, as saying: 'It is common practice in real estate sales for the developer to intentionally keep some good suites. This gives the impression that the sales are good.'"
Comments (8)
Read through and enter the discussion by using the form at the endPintoPotts - June 18, 2007 4:13 AM
This is incredible, this could be yet another straw on the camels back towards the chinese economic bubble bursting.
nanheyangrouchuan - June 18, 2007 8:58 AM
Hey, everything is wonderful in China! That's that a party official AND an Amcham guy whose been in China ten years told me!
Twofish - June 20, 2007 6:11 AM
Question: Both the Shanghai stock market and the Shanghai real estate market have crashed before, without wider reprecussions to the general Chinese economy. Is there any reason to believe that this time there are any differences? If you look at the fraction of wealth in the SSE and in Shanghai real estate, it produces a tiny percentage of GDP, and it would seem that it could collapse without anything bad happening, and the general financial system in 2007 seems much firmer than in previous crashes. Wouldn't that suggest that this isn't going to be a serious problem for the wider economy?
nanheyangrouchuan - June 20, 2007 10:10 PM
"Both the Shanghai stock market and the Shanghai real estate market have crashed before, without wider reprecussions to the general Chinese economy."
Beijing doesn't allow real crashes to occur. Connected developers don't have to make payments on their projects and the banks can't seize them. Connected investors don't have to make margin calls. China couldn't handle a 1930s US stock market crash, which created a lot of real regulatory oversight and enforcement we have now, as well as the circuit breakers, to keep that from happening again (at least under those circumstances).
That is why China's market is so far from being "market driven", people don't have to pay for their blunders. Additionally, one company is often not allowed to collect in full on debt owed by another.
China Law Blog - June 24, 2007 2:02 PM
PintoPotts -
Don't think so because I think everyone was already aware and wary of just this sort of thing.
China Law Blog - June 24, 2007 2:03 PM
nh --
Glad you believed it.
China Law Blog - June 24, 2007 2:07 PM
TwoFish --
I certainly tend to agree. I don't think this is an economy issue at all.
China Law Blog - June 24, 2007 2:09 PM
nh --
You are pretty much right.