May 20, 2013

The World Is A Strange Place Now

Some housing bubble news from around the world. The Telegraph, “Standard and Poor’s said the housing slump is deepening across large swathes of the eurozone. French declines are ‘gaining momentum’ as the economy buckles. France’s price-to-income ratio rose to a record 180pc of historic levels during the bubble, one of the most stretched levels seen anywhere in the OECD bloc. The property market began to roll over last year, prompting warnings by the French consultants PrimeView that values could tumble by as much as 40pc before excesses are purged.”

“S&P said the deep crisis in the Netherlands would grind on. Dutch home prices will slide another 6.5pc by late next year, bringing the accumulated fall to more than 23pc. Dutch unemployment surged to 8.1pc in March from 5.9pc a year ago. Over 25pc of Dutch mortgages are now ‘onder water’ - as they say in Holland.”

“S&P said Italy, Portugal and Ireland will all see further falls this year but the chief worry is Spain, where a vast glut of unsold property has yet to hit the market. Germany is marching to an entirely different tune from the rest of the eurozone. S&P said prices rose 3.5pc last year, and will rise 3pc this year and again in 2014.”

USA Today on Germany. “Berlin’s property values have jumped 30% to 50% in the past three years, and doubled in the past eight. Greeks, Spaniards and Italians — anxious over the financial future of their cash-strapped economies at home — poured in to buy. ‘Many buyers were feeling so insecure that they would try and buy apartments blindly, without having seen them,’ recalled Ruth Stirati, head of a real estate firm in Berlin that specializes in catering to Italian buyers.”

From Wales Online. “Concerns are growing that measures to kick-start the housing market could lead to the kind of price bubble that burst before the start of the recession. Spokesman for the Royal Institution of Chartered Surveyors (Rics) in Wales Tony Filice says he has seen multiple buyers making bids above and beyond asking prices in an increasingly heated first-time buyer market in Cardiff. Mr Filice said: ‘If you look at the sequence, the Chancellor announced his budget on March 21 and we were high and flying with 95% mortgages. That’s the concern [that we’re heading for a new price bubble].’”

From Irish Central. “Up to 200 ghost estates around Ireland may be demolished under new plans by the Housing Minister. The Evening Herald reports there are around 1,100 unfinished developments around the country since the property bubble burst in 2008. The Labour TD for Limerick City told the newspaper that the majority of the country’s ghost estates ‘can be finished and have to be finished. But in ghost estates where nobody is living but there are still half-built houses, probably the best resolution is to demolish them.’”

From Arabian Business. “According to Deutsche Bank, average property prices in the emirate rose for the sixteenth consecutive month in March. This has led to concerns that Dubai could be entering into a new real estate bubble, similar to the one whose bursting in 2008 led to a collapse in prices of up to 60 percent. For some investors, all of these developments are eerily familiar. Taimur Rana, did not consider himself a serious investor when in 2005 he purchased four properties at the Dubai Lagoon development. The properties he bought were scheduled for delivery in 2007, but he is still waiting more than six years later. He has so far paid AED850,000 — more than 40 percent — in instalments. ‘Nothing is going on. Not a single guy is working on it,’ he claims. ‘We don’t know where that money is going.’”

The Wall Street Journal. “Newland International Properties Corp. on asked a Manhattan bankruptcy judge ‘to limit public access’ to the licensing and other agreements that enable the developer to use the Trump name for the 2.8-acre tower overlooking the Pacific Ocean on Panama City’s Punta Pacifica Peninsula. The developer defaulted on its bond debt in November 2011 as a result of real-estate woes brought on by the global economic downturn. Trump Ocean Club opened in 2011 and features 630 condo units and 369 hotel condo units.”

The Vancouver Sun in Canada. “Vancouver’s real estate market in the next 15 years will actually be two separate markets financed by one chequebook, real estate marketer and ‘condo king’ Bob Rennie told an audience in Vancouver. The purchases will be financed by the baby boomers, who will be selling their fully-paid-for single-family homes, Rennie predicted.”

“Just 4.9 per cent of Metro Vancouver residents make more than $100,000 a year, while 65 per cent earn less than $55,000 a year. Rennie said they’re getting those down payments from their parents and grandparents. ‘The feds, Flaherty and the banks have a really hard time understanding the Vancouver real estate market,’ Rennie said. ‘They’re asking how does a $50,000-a-year income find a $75,000 down payment.’”

The New Zealand Herald. “Househunters are continuing to scramble for property - undeterred by Government promises that property prices will fall in the next three years. Yesterday, young couple Alejo Ramirez and Maria Moran were viewing an Avondale townhouse which promised ‘perfect affordable entry’ at $399,000 and were not prepared to wait for any cooling in the market.”

“‘Our budget is $400,000 and it is impossible to find anything. Three years ago, this house would have been up for $270,000. We were looking to buy two years ago and we’re kicking ourselves we didn’t buy because the houses are so much more expensive so we feel we better buy now because we know it’s going to keep climbing,’ Moran said.”

The Age in Australia. “Melbourne apartment developers are resorting to giveaways of free marina berths, $40,000 furniture packages and stamp duty rebates of up to $45,000 to attract off-the-plan buyers in an increasingly flooded market. Buyers advocate Chris Koren said buyers should be aware that such rebates and giveaways are factored into the end sale price. He said developers were trying to keep prices artificially high despite the competition.”

”’There are so many apartments being built now that the only way developers can offer a point of difference is to offer inducements,’ Mr Koren said. ‘What they don’t like to do is reduce the price because then they have to do it for everyone.”’

Macau Business Daily. “Chief Executive Fernando Chui Sai On has again asked the public to ’stay calm’ before buying homes. ‘The market is overheated and the [home] prices are too high,’ he said, adding there is a growing asset bubble in the estate sector. Mr Chui said more residents planned to buy homes as investment vehicles against inflation and making use of low interest rates. ‘But do they have to hurry up in buying homes when there is a supply of about 30,000 private housing units in the future?’ he questioned.”

The Economic Observer in China. ” For various reasons, many of the Wenjiang’s homes remain empty. In 2008, 29-year-old Zhang Chenguang noticed housing prices were relatively low in Wenjiang, he decided to endure the long commute to work every day and buy a 90-square-meter apartment there. After five years, Zhang certainly isn’t in want of peace and quiet. ‘Even during holidays you hardly see any people on the residential block,’ he said. ‘Only one-third of the apartments have lights on at night.’”

“The large number of empty houses isn’t as big of a danger as the underlying problem, which is that the city has come to over-rely on the real estate industry. As much as 80 percent of its fiscal revenue comes from selling land. ‘Now Wenjiang is really worried,’ a local official said.”

China Economic Review. “Credit can be like steroids for developing countries. But as Francis Cheung, head of China and Hong Kong strategy at brokerage CLSA, points out, China has become addicted to debt to fuel growth. More than half of China’s total debt was added in the past four years, the bulk of which came from shadow banking and bonds. The country’s debt level sits at roughly 205% of GDP as of 2012.”

“‘Since 2009, we just kept on adding more debt. In the first quarter, social financing increased 58% year-on-year’ he said. ‘And the [GDP] growth wasn’t growing. So for investors who are shrewder, they’re saying, ‘Hey, we’re adding more debt but we aren’t seeing more growth. What’s happening here?’ For the more widely read public, they’re saying, ‘Hey, there’s been some big downgrades on China’s debt from Moody’s and Fitch’ because the debt is higher than they anticipated. You keep running harder to stay still now.’”

“‘The world is a strange place now: Adding debt is not a bad thing. Printing money is not a bad thing. Can you keep it going? Yeah, you can print money now. So you can keep it going. In fact, China is not printing money, all this hot money is coming into the country. It is the one place not printing money. China isn’t a rich country. I think that could go to 250% by 2015. At 250% [debt to GDP ratio], you’re actually pushing US kind of levels. I see it as a big anchor [weighing down the country].’”

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