The Strike on Economy (1): the Long Night of Real Estate
Before the Burst of the Bubble
There were signals indeed, that warned people about the fact that the bubble was closed to burst.
It is said that Pan Shiyi, the lucky young man, used two kilos of oranges to exchange some project materials from the staff of the Hainan Planning Bureau and learned that the per capita reported construction area in Haikou City reached more than 50 square meters. At that time, the per capita reported construction area in Beijing was only 7 square meters.
The real estate supply in Hainan was far beyond actual needs.
A more reliable statement is that Pan Shiyi, have received news from the government: a macro-control document was about to be issued. Although he did not anticipate the consequences of the regulation, he insisted on the idea of leaving Hainan. Early In 1993, Pan and his friends left for Xi'an, Beijing, Shanghai, and other big cities to find new opportunities. They left at the right time.
Government’s Act
Pan's decision was right. On June 23, 1993, Zhu Rongji, the Vice Premier of the State Council, delivered a speech announcing the termination of listing of real estate companies and full control of bank funds entering the real estate industry.
A day later, the State Council issued the "Opinions on the Current Economic Situation and strengthening Macro Budget", which proposed 16 strong adjustment measures, including strict control of the total credit scale, raising deposit and loan interest rates and national debt rates, recovering illegal borrowing and borrowing funds within a time limit, reducing infrastructure investment, and cleaning All projects under construction, etc.
The Consequences in 1993
After losing the source of funds, the hot real estate business in Hainan collapsed instantly. The province's "rotten tail buildings" reached more than 600 buildings and more than 16 million square meters, and once owned 10% of the country's backlog of commercial housing.
The main reason for a large number of bad tails and backlogs is insufficient purchasing power, and people who need to buy a house cannot afford it. By the first half of 1993, Hainan's house prices had soared to 7,500 yuan per square foot, while the average monthly salary of employees across the country was only 280 yuan, and the highest in Shanghai was 471 yuan. This ratio was equivalent to 160,000 per flat in 2017.
However, the main investors of Hainan real estate are state-owned enterprises and public institutions. They would rather be vacant than lower prices as the price reduction would cause book losses. Maintaining high asset numbers can avoid legal or administrative liability for those responsible. But paper assets can't stop the break of the capital chain. Developers ran or fell, and tremendous pressure was placed on banks.
Many banks' non-performing loan ratios were as high as over 60%. Existing houses were once 20% of Hainan's real estate stock, and the cash recovery ratio was less than 20%. In addition to the drawings and buildings that have not been built at all, there are still a lot of construction projects that are in arrears, and many floors have been mortgaged for multiple times. Almost every bad building Can involve seven or eight lawsuits and a dozen creditors.
There were signals indeed, that warned people about the fact that the bubble was closed to burst.
It is said that Pan Shiyi, the lucky young man, used two kilos of oranges to exchange some project materials from the staff of the Hainan Planning Bureau and learned that the per capita reported construction area in Haikou City reached more than 50 square meters. At that time, the per capita reported construction area in Beijing was only 7 square meters.
The real estate supply in Hainan was far beyond actual needs.
A more reliable statement is that Pan Shiyi, have received news from the government: a macro-control document was about to be issued. Although he did not anticipate the consequences of the regulation, he insisted on the idea of leaving Hainan. Early In 1993, Pan and his friends left for Xi'an, Beijing, Shanghai, and other big cities to find new opportunities. They left at the right time.
Government’s Act
Pan's decision was right. On June 23, 1993, Zhu Rongji, the Vice Premier of the State Council, delivered a speech announcing the termination of listing of real estate companies and full control of bank funds entering the real estate industry.
A day later, the State Council issued the "Opinions on the Current Economic Situation and strengthening Macro Budget", which proposed 16 strong adjustment measures, including strict control of the total credit scale, raising deposit and loan interest rates and national debt rates, recovering illegal borrowing and borrowing funds within a time limit, reducing infrastructure investment, and cleaning All projects under construction, etc.
The Consequences in 1993
After losing the source of funds, the hot real estate business in Hainan collapsed instantly. The province's "rotten tail buildings" reached more than 600 buildings and more than 16 million square meters, and once owned 10% of the country's backlog of commercial housing.
The main reason for a large number of bad tails and backlogs is insufficient purchasing power, and people who need to buy a house cannot afford it. By the first half of 1993, Hainan's house prices had soared to 7,500 yuan per square foot, while the average monthly salary of employees across the country was only 280 yuan, and the highest in Shanghai was 471 yuan. This ratio was equivalent to 160,000 per flat in 2017.
However, the main investors of Hainan real estate are state-owned enterprises and public institutions. They would rather be vacant than lower prices as the price reduction would cause book losses. Maintaining high asset numbers can avoid legal or administrative liability for those responsible. But paper assets can't stop the break of the capital chain. Developers ran or fell, and tremendous pressure was placed on banks.
Many banks' non-performing loan ratios were as high as over 60%. Existing houses were once 20% of Hainan's real estate stock, and the cash recovery ratio was less than 20%. In addition to the drawings and buildings that have not been built at all, there are still a lot of construction projects that are in arrears, and many floors have been mortgaged for multiple times. Almost every bad building Can involve seven or eight lawsuits and a dozen creditors.
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