March 7, 2013

Prices On Another Planet

The Geelong Advertiser reports from Australia. “Stockland is abandoning its controversial housing estate at Point Lonsdale, hoping to sell its holding after posting a half-yearly loss. Australia’s biggest housing developer revealed it had identified 13 residential projects to sell off, after writing down the value of its developments following falls in home prices, particularly in Victoria. Stockland’s reported net loss was $147.1 million in the six months to December 31, compared with a profit of $307.6 million a year ago.”

“Managing director and CEO Mark Steinert said the loss was largely due to an impairment of Stockland’s residential arm. ‘We have … identified 13 residential projects that do not meet our hurdles and have impaired them for wholesale disposal, rather than continuing to develop them out,’ Mr Steinert said.”

From Adelaide Now in Australia. “The State Opposition says more must be done to avoid further business failures in the construction industry after the demise of Adelaide builder McCracken Homes. Opposition economic and regional development spokesman Martin Hamilton-Smith blamed the State Government for creating the problems that had led to building industry failures in recent months. ‘Businesses depend on sales and income. Mr Weatherill needs to explain why population growth, housing loan finance and investor sentiment have collapsed under his leadership,’ he said. ‘At least one contractor has told me he stands to lose $55,000 - risking the business, his six employees and forcing him to look at selling his property and vehicles to make ends meet.’”

The Walcha News in Australia. “At the state level, the slump in first home buyers (FHBs) commitments has been driven by big falls in New South Wales and Queensland, where FHB grants on pre-existing dwellings were axed in October 2012. Victoria, where FHB grants on newly constructed dwelling were wound-back in July 2012, has also taken a big hit over the past six months.”

“Focusing on New South Wales and Queensland only, the number of FHB finance commitments have literally crashed, with commitments in both states running 50 per cent-plus below the levels recorded just prior to when the FHB grants were extinguished in October. In fact, the number of New South Wales FHB commitments in December was the lowest in 21 years.”

“Of course the removal of the grants was long overdue and made perfect economic sense. As Australia’s mining boom winds down, building more houses is one way to create the new jobs that will be needed. There is now widely accepted truth that all the grants really did was drive up prices for FHBs, not really their intended purpose.”

“But the real reason, I suspect, that FHBs are still scarce in the property market is not so much that they are on strike as it is that they are locked out. Even after 175 basis points in interest rate cuts, housing affordability in Australia remains terrible. We have barely made it back to 2003 levels when speculation was driving prices to undreamed highs. Even with rates at 3 per cent, repayments are much more onerous than when interest rate were at 17 per cent in 1989.”

“Expect political recriminations to fly over first home buyers being ‘locked-out’ of home ownership, as well as increased special pleading from the property industry demanding that taxpayer funds once again prop-up the market.”

The Herald Sun in Australia. “Bargains await Sydney home buyers, with desperate vendors currently discounting properties by up to 27 per cent. Often, there is nothing wrong with the property, but it has been on the market too long thanks to unrealistic expectations. The biggest savings were found on the northern beaches, where prestige properties were discounted by as much as $1 million, but more affordable properties also made the list, suggesting dedicated bargain hunters could prosper anywhere.”

“While price plunges make properties attractive, it is imperative that potential buyers conduct meticulous research, to make sure they are actually getting a good deal. ‘People should make sure they get an independent valuation on the property to take advantage of over discounting’ said Louis Christopher, managing director of SQM Research. ‘The fact it has been discounted by 25 per cent still might not make it good value.’”

The Press in New Zealand. “Potential property buyers may need to lower their expectations and move to further-away suburbs if they want to get a home. Anna Turner reports on what property experts are calling the ‘housing expectation crisis.’ Independent Property Managers Association president Martin Evans said first-time buyers needed to be more realistic. ‘People say ‘How is someone on a $40,000 income supposed to buy a house?’ Well, often they’re going for a four-bedroom, two-bathroom place with all the bells and whistles when they need to be going for a two-bedroom state house and work their way up the ladder.’”

“A homeowner spoken to by The Press was looking to buy a four-bedroom home in the west. The woman already owned a three-bedroom property in Avondale, which she planned to rent out if she could find another home. ‘We really had our hopes set on one recently and thought mid-$400,000s would be reasonable as it needed renovations. It recently went to auction and went for a little over $500,000.’”

“Evans said this was a common complaint. ‘Anecdotally, people go to an auction for a big place and their budget is $400,000 and it goes for $500,000. They walk away and tell everyone it’s impossible to buy a house but they just need to look at a lower-end house in the $300,000 bracket.’”

The New Zealand Herald. “Standard & Poor’s has highlighted the ’significant risk’ of a sharp correction in property prices in its latest report on New Zealand’s banking outlook. Harcourts chief executive Hayden Duncan said the idea that property prices were at risk of plummeting was almost scare-mongering. ‘In order for that to happen, you need to have an oversupply of a product. There is no chance that we have an oversupply of homes or housing or accommodation in the major cities in New Zealand. I think the reality is, their comments are probably irresponsible and possibly uneducated in relation to this particular part of the world. “I don’t think there’s any chance that it’s going to plummet or decline any time soon.’”

“But financial commentator Bernard Hickey said that while Auckland’s property prices were ‘on another planet’ because of lack of supply and continuing demand, they were not bulletproof. ‘The economy would have to significantly slow down, you would have to see a sharp drop in the dollar, and an increase in interest rates. And at the moment there’s no obvious suggestion that that’s close by.’”

Sun Live in New Zealand. “The original developers of Mount Maunganui’s Pacific Apartments on Maunganui Road has gone into receivership forcing 16 apartments to be put up for tender. Asia Pacific Management Limited went into receivership in November 2012 with Corporate Finance Limited in Auckland appointed the receivers for the 16 residential apartments owned by the developer of the complex completed in 2009. The rest of the complex apartments are already owned.”

“Realty Services Group chief executive Ross Stanway says the receivership does not reflect the wider state of apartment sales in Mount Maunganui, as he says apartments are beginning to sell again following a three year halt to developments. ‘At the time these apartments were under construction there was a number of other completed or near completed apartments. There’s been an adjustment in the property market that everyone is well aware of. Apartments are selling if they are well constructed and well presented in the current market and there are people interested in purchasing them.’”

“Alan Dudson wrote in the Herald on Monday that the reason house prices are too high is that property investors are subsidised by the Government. What a load of rot. The basis for Dudson’s view is that he believes property investors have an advantage over home buyers because they can claim a tax deduction for expenses.”

“If Dudson had his way, the rental property owner would still have to come up with a deposit, but would then have to spend an extra $20,000 a year on expenses and taxes. He predicted that this would ‘flood the market with thousands or tens of thousands of houses for sale’ and ‘immediately lower the cost of housing dramatically.’ This is one of the few points on which he is correct.”

“He predicts this will enable thousands of NZ families to buy their own homes. He is right, but what about existing home owners?”

“Many stalwarts of bringing down house prices, like Dudson, suggest three times the average annual income as the point of affordability. This equates to half the value of houses being wiped out and would be the likely scenario of Dudson’s plan. If it ever occurred, any existing home owner who previously had less than 70 per cent equity in their home would probably lose it to a mortgagee sale.”

“Even people who in theory have debt-free homes may still be in trouble. Consider the many parents in NZ who have agreed to guarantee their children into home ownership. If the kids borrowed the entire amount, the bank would look to the parents for the entire debt. Imagine being in your 60s feeling secure in a $600,000 debt-free home, then finding your home is now worth $300,000 and you owe this or more to the bank for your children’s home. Both you and the kids lose your properties. The same situation may arise for people who borrow for their business and use their homes as collateral. It would be a disaster.”

“Many people have been given the wrong information about rental property and how it is treated for tax purposes. While Inland Revenue says there is no advantage, people like Dudson continue to make baseless claims that an advantage exists. Be careful who you listen to, people, as you may get what you wish for.”

Bits Bucket for March 7, 2013

Post off-topic ideas, links, and Craigslist finds here.