Something That Never Was
It’s Friday desk clearing time for this blogger. “The vast plains are dotted with the windmills at which Don Quixote once tilted. Squatting incongruously among them is a €1.1 billion ($1.5 billion) white elephant: Ciudad Real’s airport. Other than the chirping of autumn crickets, the silence is absolute. The only signs of life at the visitor centre are bats in the ventilation shafts. This airport tells a tale about Spain. In the past decade, during el boom, money poured in, inflating a huge construction bubble. Grand infrastructure projects like Ciudad Real airport sprouted. Many of Spain’s 17 regional governments channelled cash into trophy schemes—universities, art galleries, high-speed rail—with no concern for whether they would pay their way. They were abetted by the cajas, small unlisted savings banks, often with opaque ownership structures, that lent recklessly on the assumption that property prices could move only in one direction.”
“Earlier this year Spain’s central bank took on the cajas, nationalising some and forcing others to merge. But their asset books are clogged with bad debts and repossessed property. Shrinking credit is a big threat to the economy. ‘Banks need to be helped to do their job,’ says Ignacio Muñoz Alonso, CEO of Addax Capital, a fund manager. ‘That is to lend money, not to be large real-estate managers.’”
“Worse may be to come: property prices are only 22% off their 2008 peak. Guesses at the recapitalisation needs of the cajas run as high as €100 billion.”
“The cult of ruins dates to the 18th century, when the vestiges of ancient Rome acquired a special fascination for artists and writers. In the 18th century, especially if you were a nouveau-riche arriviste, you had to acquire antiquity. You did it by constructing a ‘ruin’ on your property. But the fall of the Celtic Tiger hardly has the weight of the fall of Rome or the end of American industrial might. The half-built houses that scar the landscape are much closer to the other notion of ruins. They are literal and metaphorical follies.”
“A new arriviste ascendancy, with more money than sense, accidentally constructed its own versions of the mock-ruins. Ghost estates are not the relics of glory. They speak to us not of something that used to be but of something that never was. Not only were they abandoned before they were inhabited, but the thing of which they speak – the Irish bubble – was an illusion. They are the vestiges not of a great empire but of a folie de grandeur. This is not a past to be mourned in passive melancholy. It is a political and social outrage, a product of bad economics, bad planning and bad politics.”
“The war in his homeland was a boom time for Sayed Aman Abed. The Kabul real estate broker made a small fortune over the past several years as billions of dollars in foreign aid and reconstruction contracts flooded into Afghanistan, creating a robust market for homebuyers and renters in the capital. Abed, a slight, boyish 25-year-old, did well enough to pick up the entire tab for his wedding last year, which cost $27,000, a princely sum in Afghanistan.”
“But Kabul’s unlikely housing bubble is deflating rapidly. ‘Ever since the Americans announced the drawdown of their forces,’ Abed said, ‘I haven’t sold a single house.’”
“Various marketing strategies are now being used by real estate developers in some Chinese provinces. A developer in Wenzhuo province dangles off a new BMW for a small deposit for the first 150 buyers in the so-called Central Mansions, a cluster of towers with 868 apartments in Wenzhou, according to Global Edge. ‘The BMW deal is a sign of the desperation felt by developers in China’s once-booming property market, which has been pounded by government measures aimed at heading off a bubble,’ the report said.”
“Right now, China is obsessed with the Occupy Wall Street movement, deathly afraid that it will spread there. How can I tell? The China Daily recently ran a column headlined: ‘U.S. Media Blackout of Protest is Shameful.’ So I called the author, Chen Weihua, deputy editor of China Daily USA. He’s based in New York. State-controlled Chinese media have made a festival of Occupy Wall Street coverage, part of the government’s effort to convince its people that they are much better off living in China rather than decadent America, riven with income inequality. ‘The U.S. crisis is a result of the unrestrained freedom for the rich,’ Global Times, a government newspaper, reported.”
“Global Times writer Wang Yizhou, a professor at Peking University, remarked: ‘Things would be very different if the protests took place in China. The government would take powerful measures, and the financial giants would dare not to refuse change.’ The China Digital Times reports that ‘a long list of banned keywords has been uncovered’ that are blocked from display on search engines. Chief among them: the word ‘occupy’ followed by every city in the country, like ‘Occupy Guangzhou.’”
“And a Shanghai news site reports: ‘Multiple sources have told the Shanghaiist that police have been going around bars asking foreigners if they’ve got anything to do with the Occupy Wall Street movement,” afraid that those people ‘might start an Occupy Shanghai.’”
“Some American journalists are guilty of their own overexuberant, even gleeful, reporting on China’s problems. Late last month, a reporter for MarketWatch wrote: ‘Forget Greece. Forget Italy. Forget Occupy Wall Street. The really ominous news right now: China’s housing bubble is finally bursting.’”
“Looking over all of this, Chen, the China Daily columnist, said protesters told him: ‘It’s natural that corporate-controlled media outlets are not going to cover a protest that is fighting excessive corporate influence in society.’ (Sounds like a typical young American protester’s concern, doesn’t it?)”
“When it comes to buying a condo, what’s a better investment? Buying one that’s already built and is being resold, or buying on the hype of a new building that’s yet to be constructed? Jana Masiewich considered both a resale and pre-construction condo before deciding that buying a condo prior to it being built presented a better opportunity for her to make money on her investment.”
“While it might be a wait to move in, the initial financing moves fast. ‘It can be financially daunting to put down 20 per cent in six months. Most people don’t walk into a sales centre with $50,000 in a briefcase,’ says Ms. Masiewich, who is accessing the Home Buyers Plan, her savings, and short-term family loans, to meet the financial requirements. The downside is having this 20 per cent tied up, with no monthly returns, for the next few years.”
“‘Patience is a virtue,’ laughs Ms. Masiewich.”
“Nearly one in six Marin homeowners were underwater on their mortgages in the third quarter, up slightly from the previous quarter but a dramatic jump from the third quarter of 2010. The problem is more pronounced in the northern part of the county, where home prices have fallen most sharply. In parts of Novato, some houses that once sold for $600,000 are now valued at $300,000 to $350,000, said Connie Irwin, an agent for Pacific Union International.”
“‘If people are underwater, I basically tell them to talk to a financial tax person and a bankruptcy person to figure out their options,’ Irwin said. ‘I don’t think it’s worth losing their home if it’s a small amount. I don’t see the market going down dramatically anymore.’”
“‘I know they are destroying lives. If I lose my home, I mean, being up there in age, I’m not going to go house shopping again,’ said Brad Mays, who is facing foreclosure. Mays was victimized twice by banks after buying his dream home in Laughlin. He has a good job with the railroad, but when he sat down to sign final loan documents, the monthly payments listed on the new documents were much higher than what he agreed to pay. Callister calls it a bait and switch.”
“‘They said they would correct it. Let’s just get in the house and correct it. So I signed the loan documents,’ said Mays.”
“Asset markets, in this case, property, are the subject of speculation based upon the delusional premise that past price rises will continue indefinitely into the future, with no chance that a downturn will occur. The dream of creating and realising capital gains has prompted ever more Australians to participate in the property market as either first home buyers or investors (speculators).”
“Incomes rise too slowly and savings are too low to inflate a bubble into the stratosphere. Another ingredient is needed: mortgage debt. Property is not bought for the rental income stream it provides because this is insufficient to finance the debt used to purchase property at inflated prices during a bubble. Since 2000, rental income has not even covered interest charges. No rational individual purchases an asset that generates a net negative yield – but clearly speculators have been pursuing capital gains instead.”
“Australians have shouldered a mountain of debt, readily supplied by the banking system. Mortgage debt currently stands at $843 billion and $359 billion for owner-occupier and investment properties, respectively, for a combined total of $1.2 trillion or approximately 90% of GDP in 2011.”
“The fault of the government lies not in creating these inefficiencies, but rather amplifying them via social engineering and poor tax structures. But rather than implementing policies that will prevent or diminish the possibility of a housing bubble, the Australian government has done the exact opposite.”
“In this vein, business journalist Alan Kohler’s words are priceless: ‘Five years ago Treasurer Peter Costello told Australians: ‘Work for a living and we’ll tax you at close to 50 cents in the dollar; speculate and we’ll only take 25 cents. Not only that but, as a special deal – while stocks last – we’ll pay half your speculating costs.’”
“In ancient times, the Egyptian Pharaohs would decree ‘our pyramids must be strengthened and made larger: find more slaves.’ In modern times, the Australian corporate state declares: ‘our housing pyramid must be kept strong: find more Australian debt-slaves.’”
