A New Upswing Or Retrospective Claptrap?
The Sydney Morning Herald reports from Australia. “Worried that $500,000 is too much to pay for a Melbourne house? The Reserve Bank isn’t worried and it expects prices to climb higher still. In a speech that amounted to a defence of Australia’s historically high house prices, Reserve Bank deputy governor Ric Battellino told a Melbourne housing conference yesterday to expect worse and to recognise that buyers were getting value for money. Prices would climb further because the global economy was growing again and because Australia had entered ‘a new upswing” that would extend its record 18 years of continuous economic expansion.”
“While there was ‘a common perception that house prices relative to household income in Australia are high’, Australia’s population was ‘more concentrated in a few large cities’ than were other populations and Australians had more free income with which to pay for housing.”
”’Australians seem to spend less of their income on non-housing consumption than is the case for US households, with a significant part of this difference explained by lower health costs in Australia,’ the deputy governor said. ‘Australian households, as a whole, appear to have the financial capacity to sustain a relatively high ratio of housing prices to income.’”
“The latest RP Data research puts the typical price of a Melbourne house at around $500,000 after climbing $46,000 over the past year and the typical price of a Melbourne unit at $398,000 after climbing $37,000.”
“‘Census data shows at 2006 there were 8 per cent more dwellings in Australia than there were households,’ Mr Battellino said. ‘Presumably, most of this surplus reflects holiday houses and second houses.’”
“‘Australian households as a whole appear to have the financial capacity to sustain a relatively high ratio of housing prices to income,’ Mr Battellino said. ‘It is certainly the case that the ratio is higher now than it was 20 years ago. However, this is largely explained by the fact that lower interest rates have allowed households to take out bigger home loans without increasing housing loan repayments. In turn this has given households more buying capacity in the housing market, which has been reflected in house prices.”’
The Business Spectator in Australia. “RBA deputy governor, Ric Battelino presented a speech that did everything in its power to justify bubble price structures for Australian housing. This is retrospective claptrap. Australian house prices rocketed to record multiples between 1995 and 2003, provoked by a generational mania that had its principal foundation in a colossal credit bubble fueled by non-banks and banks’ huge offshore borrowing.”
“We were concentrated in a few large cities before then and multiples had not expanded. It was also long before the commodities boom, population surge or housing supply issues. Prices may have been supported and boosted further by the surge in national income after 2003 but, even so, multiples of income remain 80-odd per cent above historic averages.”
From News.com.au in Australia. “More than one third of Australians plan to buy a property in the next two years despite concerns over higher living costs and rising interest rates, a survey…commissioned by mortgage broker Mortgage Choice, found. Mortgage Choice corporate affairs manager Kristy Sheppard said more borrowers were now taking ‘ownership’ over their financial situation.”
“As a housing market service provider, Mortgage Choice is pleased to see 41 per cent of respondents planning to buy property in the next two years and 43 per cent of them planning on an investment property,’ Ms Sheppard said.”
“The Australian housing market has emerged from the financial crisis relatively unscathed compared to its global counterparts, which would probably be part of the reason why 64 per cent of respondents believe house prices will rise in the period to November 2010.”
“Ms Sheppard said that while many borrowers were concerned about rate rises, 40 per cent were prepared for increases of at least five percentage points, a much higher figure than was forecast for the next few years. ‘This suggests many borrowers can comfortably repay their home loan sooner, if they put their mind and budget to it,’ she said.”
From Smart Company in Australia. “Over $68 billion worth of property developments are planned or underway on the Gold Coast, with the value of the work across all sectors now higher than expected during 2007, a new report has revealed. But head of property research at Advisor Edge, Louis Christopher, says the market is flooded and developers would do better to seek investments in other areas.”
“The figures also come after insolvency experts PPB announced earlier this week that 25% of all resorts and hotels on the Gold Coast are being watched due to fears they may become insolvent. The region was hit hard by the downturn, with housing prices falling up to 40% and several companies falling into receivership.”
“But Christopher says the Gold Coast market is flooded, and investors should consider moving their interests elsewhere as the area is not experiencing a recovery. ‘We are recording thousands of properties on the Gold Coast that have been on the market for over six months, literally thousands of them. This is not a market that has recovered unlike the capital cities throughout the course of this year, and is very similar to what we are seeing in other holiday locations across the country…very weak.’”
“‘At this stage, I think it’ll be very tough for developers to compete in the area unless they’ve got something essentially very, very good, or at or below market value. There is just too much stock listed.’”
“The luxury property boom continues. Yesterday it was $17 million for an unfinished mansion on Gold Coast’s exclusive Hedges Avenue. Today, a mystery buyer has paid $25 million for a mansion in the Melbourne suburb of Hawthorn. Earlier this month, Lachlan Murdoch paid $23 million for a mansion in the exclusive Sydney suburb of Bellvue Hill. He beat a strong field of bidders including Russell Crowe and Nicole Kidman for the property, which has sweeping views of Sydney Harbour.”
“The sudden boom in prestige property comes after a difficult period at the top of the housing market, where prices plunged by as much as 30% in some capital cities. Tony Kelly, managing director of the Melbourne office of valuer Herron Todd White, says an increase in the interest from international buyers is helping to push prices up sharply. The Federal Government’s recent decision to relax foreign property ownership restrictions has led to an influx of foreign buyers at all levels of the property market, he says.”
“‘When you think about what goes on in the southern part of the hemisphere, Australia is really one of the safest places to put money into property. Our economy is very stable and it’s been very strong compared to a lot of other places,’ he says. ‘If you’ve got some money in India and China, then Australia looks like a pretty safe place.’”
“A second contributing factor is a strategy used by agents to take selling campaigns out of the public spotlight and pitch high-end mansions to quiet, cashed-up buyers. ‘What they are trying to do at the minute is really marry somebody who might need to sell quietly with some of this international money coming in,’ Kelly says.”
From Asia One. “Property prices in Singapore jumped an all-time record 14.3 per cent in the third quarter, in tandem with the rise in prices elsewhere, according to some of the latest global data. However, property experts here say the steep rise in housing prices is unlikely to continue, thanks to a slew of government- introduced measures to prevent the market from overheating.”
“Quarter-on-quarter house price changes in Singapore, Britain, Canada, Germany and South Africa are back in positive territory after the financial crisis, according to Global Property Guide’s latest data. In the third quarter, price rises have occurred in 16 countries, and fell in only 11, of the 27 countries that have published their latest quarterly figures.”
“Hong Kong’s housing market, meanwhile, has entered a phase of irrational exuberance. House prices there rose by 3.1 per cent over the year to Q3, a significant improvement from the 7 per cent year-on-year decline ending Q2. In the three months to September, house prices jumped 11.1 per cent.”
“As for the Singapore market, some say prices may have already peaked. Mr Donald Han, managing director of real-estate brokers Cushman & Wakefield, noted that mass-market prices are already hovering at peak levels, aided by active pick-up in residential activity for the mid to low-end properties. Sell-out launches of private condos The Caspian near Jurong Lake and Alexis near Queenstown MRT station in Q1 show that confidence and liquidity have returned to the marketplace.”
“‘But Q3 prices have gone up too fast, in too short a time,’ he warned. ‘The steep V-shaped recovery cannot be sustained. The market needs a breather.’”
“But there could be more buzz for luxury properties priced above $2,200 psf.
Said Mr Han: ‘Top-end prices can go up by 25 per cent, as high-end investors look for bargains in Districts 9, 10, 11, Sentosa Cove and the Marina Bay areas.’”
“He also expects prices to climb 11 per cent for high-end units (priced between $1,500 and $2,000 psf) and 7 per cent for mid-tier ones.”
“Meanwhile, investors in Dubai, UAE, have something to be optimistic about: Dubai’s nominal house-price index increased 7 per cent in the third quarter, a significant improvement from an 8 per cent fall in Q2.”
The Associated Press. “Just a year after the global downturn derailed Dubai’s explosive growth, the city is now so swamped in debt that it’s asking for a six-month reprieve on paying its bills — causing a drop on world markets Thursday and raising questions about Dubai’s reputation as a magnet for international investment. The fallout came swiftly and was felt globally after Wednesday statement that Dubai’s main development engine, Dubai World, would ask creditors for a ’standstill’ on paying back its $60 billion debt until at least May.”
“Dubai became the Gulf’s biggest credit crunch victim a year ago. But its ruler, Sheik Mohammed bin Rashid Al-Maktoum, had continually dismissed concerns over the city-state’s liquidity and claims it overreached during the good times. When asked about the debt, he confidently assured reporters in a rare meeting two months ago that ‘we are all right’ and ‘we are not worried,’ leaving details of a recovery plan — if such a plan exists — to everyone’s guess.”
“Then, earlier this month, he told Dubai’s critics to ’shut up.’”
“The more than 2,600-foot (800-meter) Burj Dubai is scheduled to open in January as the world’s tallest building. But many other projects, including a tower even taller than the Burj Dubai and satellite cities in the desert, are still just blueprints.”
“The standstill will likely not immediately affect CityCenter, an $8.5 billion casino complex opening next month in Las Vegas that is half-owned by Dubai World. A Dubai World subsidiary and casino operator MGM Mirage agreed with banks in April to fully fund and finish the six-tower, 67-acre development of plush resorts, condominiums, a retail mall and one casino on the Las Vegas Strip.”
From NineMSN Money. “Brad Pitt, Angelina Jolie and David Beckham are set to lose millions on their luxury homes in Dubai, as the emirate’s debt spirals out of control leaving the future of the housing market hanging in the balance. Nakheel’s Palm Jumeirah development sold 2,000 luxury villas and apartments within a month in 2002, amid the explosive growth of investment in Dubai.”
“At one point, Dubai was said to house 80 percent of the world’s cranes.”
“With Nakheel unable to pay its debts, construction is likely to stall on the island, leaving the luxury villas surrounded by an ugly building site – which could see property values plunge. House prices in Dubai fell 47 percent in the second quarter, compared with a year ago, and Dubai World may be forced to sell off assets – including Nakheel developments - in order to repay its vast debt.”
From Live Mint. “It’s true that Dubai’s problems stem from the surreal happenings in real estate there, with the place being home to the world’s tallest tower and the biggest man-made islands. Real estate prices have fallen by around 50% in the sheikhdom and are expected to continue to fall. At the same time, the debt restructuring is a clear signal that there are still lots of buried mines out there and it’ll be a long time before the world economy will be out of danger.”
“Many of the economies and banks in the West continue to be on life support and their capacity to weather shocks is much diminished. Matters are not helped by the fact that many international banks have lent heavily to Dubai, banks that are still in a vulnerable position and need to raise capital. But if Dubai was a real estate bubble waiting to burst, other emerging markets, too, are overextended. Analysts have been warning about Eastern Europe, with their high foreign currency borrowings and dependence on exports.”
“Vietnam, another darling of emerging market investors, is also facing problems. And finally, while Dubai may be facing severe overcapacity in housing, China, the big daddy of all emerging markets, is also facing overcapacity in a host of industries, made worse by huge growth in credit.”
The Jakarta Globe. “One of the country’s largest property developers, PT Ciputra Development, plans to expand into China with a residential project due to start next year, with revenue of about $1.3 billion expected to accrue over 12 years, the company said on Monday.”
“‘The project, which consists of houses and high-rise units, promises a high profit margin of more than 40 percent gross, which is why we’re interested,’ said Tulus Santoso, a Ciputra Development director.”
“The project will include a total of 20,000 units, with the keys to the first 500 units — about 60 percent of them houses — to be delivered in 2011, he said. ‘In China, individual housing units can fetch three times the price of high-rise apartments.’”
“‘We will have to see later how the China project performs as this is their first venture in China,’ said Natalia Sutanto, a property market analyst at brokerage firm PT Ciptadana Sekuritas. ‘They’ve already been quite successful with their property developments in Vietnam and Cambodia.’”
The Thanh Nien Daily in Vietnam. “National Assembly representatives on Saturday voiced their disagreement with the annual house tax proposed by the finance ministry, saying it would cause adversely impact many citizens. According to the draft submitted early this month, homeowners would have to pay an annual house tax of 0.03 percent of the assessed value, which is based on total construction costs. Houses built for VND500 million (US$27,901) or below will be exempt from this tax.”
“‘With the current per capita income (less than $1,000 a year) the housing tax shouldn’t be levied within the next ten years,’ Ho Chi Minh City representative Tran Du Lich said.”
“Many deputies also said that to effectively curb property speculation, the stated aim of the draft on housing taxes, the draft should target those who own more than two houses. Tax rates on housing area should also be increased, as the proposed one wasn’t high enough to deter land speculation, said deputy Truong Xuan Quy from the northern province of Tuyen Quang.”
“‘The (proposed) tax rates are too low to curb land speculation, especially for land left idle,’ said Le Dung NA deputy from the Mekong Delta province of Tien Giang.”
“Representative Ngo Van Minh from the central province of Quang Nam, said, ‘We should never ask those who only own one house to pay tax,’ as people have already paid taxes when buying constructional materials.”
The Lahaina News in Hawaii. “‘What is happening with the real estate market?’ This is the number one question that I am asked on a daily basis.
The answer? A property priced right based on recent comparable sales, in a good location and in clean, modern condition will sell. In other words, if you are a serious seller, you are now entering your property into a beauty contest with a price war raging.”
“There are 101 pending sales on West Maui, which is up 20 percent from 60 days ago and over the past ten months. On West Maui, there have been 16 residential home sales closed since Oct. 1, 2009. The lowest was $450,000, and the highest sale at $2,800,000 was in Launiupoko. Seven of the home sales were over $1 million.”
“West Maui condo closed sales since Oct. 1, 2009 total 34. The lowest priced fee simple condo was $179,000 for a 486-square-foot studio. Only four condo sales were over $1 million, and none of the condos sold as high as $2 million. Four of the condominium sales were leasehold, and the remaining was fee simple. Price per square foot ranged from $282 to $1,370.”
“This is a far cry from the $9,000 per square foot Paul Brewbaker quoted for elite Hong Kong properties in a recent speech on why Hawaii properties are an investment that international investors should seriously consider. Comparing the price per square foot numbers with international markets can make West Maui a real bargain.”
The Herald News in New Zealand. “Even with two earners, Donna and Terry Victory struggle on below-average wages to feed themselves and their 14-year-old daughter. Mrs Victory, 34, earns $15.94 an hour after almost nine years as a teacher aide for 27.5 hours a week at a school for disabled children in South Auckland.”
“Mr Victory, 37, also earns below the average wage of $25 an hour after 7 years as a fulltime quality assurance technician in the printing industry. Their combined incomes of just $933 a week after tax, averaged over the year and excluding overtime, gives them just $33 a week for food, petrol and other living costs after meeting their automatic payments of $1800 a fortnight for the mortgage, rates, insurance, a car loan and hire purchases on a fridge and washing machine.”
“‘We rely on Terry’s overtime to be able to make ends meet,’ Mrs Victory said.”
“This year that overtime has dried up with the recession, forcing the family to borrow twice from Mrs Victory’s parents. They are getting by now only because the overtime has picked up again since the recession bottomed out in mid-year.”
“Until 2006 they were renting, but the house was damp and Mrs Victory and her daughter Shontelle were constantly sick. When the landlord raised the rent, they applied for a state house. ‘They asked, ‘Are you on a benefit?’ ‘No, we both work,’ she said. ‘Well, you don’t qualify’ they said.”
“‘So then we thought about trying to buy our own house and were lucky enough to get a mortgage broker who secured it against my parents’ house. We had no deposit. We had huge loans from our wedding. We consolidated the loans into the mortgage.’”
“They bought a modest house in Papatoetoe for $279,000, paying off the mortgage at $1200 a fortnight. The interest rate dropped this year. But they used the difference to take a new loan for a car. ‘We don’t earn low enough to get Government help, and we don’t earn high enough to get by,’ she said. ‘We are stuck in the middle.’”
