June 17, 2013

If Investors Find It Difficult To Exit, The Market May Crash

Some housing bubble news from around the globe. The South China Morning Post, “On paper, Vancouver is not a wealthy city. But it is a city that is attractive to wealthy overseas buyers, mostly from mainland China, who are driving up prices. Investors are either securing their money in real estate for several years, or purchasing pre-sale properties and flipping them for tremendous profits. Developer Thomas Fung has an office and retail project under construction, and already has had several of the pre-sale purchasers flip their spaces for around 50 to 60 per cent profit.”

“Because of residential property investments, certain parts of the city are underpopulated. In downtown Vancouver’s Coal Harbour, an estimated 23 per cent of all condos are empty. The wealthy owners have not rented them out. ‘People who can afford to buy those condos are so rich they don’t even care about the return on their investment,’ Fung said.”

The Telegraph on China. “China’s shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned. ‘The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem, and potentially into a Japanese-style deflation,’ said Charlene Chu, the agency’s senior director in Beijing.”

“Concerns are rising after a string of upsets in Quingdao, Ordos, Jilin and elsewhere, in so-called trust products, a $1.4 trillion (£0.9 trillion) segment of the shadow banking system. Bank Everbright defaulted on an interbank loan 10 days ago amid wild spikes in short-term ‘Shibor’ borrowing rates, a sign that liquidity has suddenly dried up. ‘Typically stress starts in the periphery and moves to the core, and that is what we are already seeing with defaults in trust products,’ she said.”

The Edge Malaysia. “A recent poll among auctioneers revealed that a number of local and foreign buyers have not been servicing their loans for high-end property purchases made a few years ago, during the height of the luxury high-rise residential property boom in Kuala Lumpur. Most of these owners have tried to sell or rent out their units but find it difficult to sell residences priced above RM 1 million. ‘Eventually, these buyers decide that they would rather lose their 10% down payment than to continue being stuck in this situation,’ said auctioneer Dan Tan.”

“‘I have been told there is a condominium along Jalan Tun Razak that is currently only 60% occupied. The development was completed four years back,’ says auctioneer Abdul Hamid PV Abdul. Abdul Hamid add that although there have been numerous industry reports regarding an obvious oversupply of condominiums in the KLCC area, more high-end, high-rise developments are set to be launched.”

The Saigon GP Daily in Vietnam. “The People’s Committee of Ho Chi Minh City convened a meeting on June 4 with related departments associated with housing and construction to discuss the ongoing crisis of unsold housing inventory in the City. Around 308 condominium blocks in HCMC have had to put on hold all construction for lack of buyers and frozen property market. Since the beginning of the year, 1,877 apartments were sold, accounting for 13 percent of total apartment inventory but 12,613 apartments are still unsold.”

The Times of India. “Builders across the country have been worried as unsold housing stock have been piling up in the recent months. Chennai’s unsold housing stock, for instance, has risen from 20,000 units a year ago to 45,000 units now as per a study conducted by international realty consultant Jones Lang LaSalle. Sales have dipped across seven major markets in India in the first quarter of 2013, said JLL chairman and country head Anuj Puri.”

“About 35% of Chennai suburbs unsold housing stock is on the OMR, said India Property CEO Ganesh Vasudevan. ‘If investors who have funded the projects find it difficult to exit, the market may crash as it happened in the case of NCR,’ he said.”

The New Zealand Herald. “A bank economist has warned of consumer spending sprees and widespread economic fallout if house price rises continue, just as QV showed the sector continuing to rocket ahead. Felix Delbruck, Westpac Institutional Bank senior economist, worried about the effects of a rocketing market, saying it was true that, about two years ago, people had been paying down debt, but that trend now appeared to have reversed. Mortgage growth had picked up since early last year ‘and indeed now seems to be growing slightly faster than household incomes. Mr. Delbruck said borrowers could remortgage, ‘effectively using the house as an ATM.’”

“QV operations manager Kerry Stewart said Auckland prices were still very high and a ’somewhat desperate’ feeling was emerging among buyers searching for good houses at reasonable prices. The speed with which people had to make an offer had seen some forgo the usual due diligence.”

Bdaily Business News in the UK. “Announced during the Budget, Help to Buy helps people purchase properties with deposits as low as 5% but has also been criticised by the IMF, outgoing Bank of England Governor Sir Mervyn King and former Chancellor Alistair Darling. Early results however show the scheme to be exceeding expectations with 4,000 new homes sold in the two months since it was announced. Figures out this week have also shown output in the construction industry rising for the first time since last October, with house builder Bellway also reporting a boost in sales.”

“Ajay Jagota of KIS Lettings, who manages properties for 700 landlords believes that despite the dangers Help to Buy could yet prove a crucial catalyst to economic recovery. He said: ‘Of course Help to Buy runs the risk of fuelling a new housing bubble, especially if demand for homes starts to seriously exceed supply - but if it is properly-implemented and only ever used (as) a short-term measure there’s no reason to believe the sky is about to fall on our heads.’”

“‘It seems to me that Help to Buy’s critics are judging it only on the basis of the most apocalyptic worst-case scenario – they’re like people who won’t go to hospital when they’re sick in case the ambulance crashes. If you won’t do something because of a hypothetical risk, you won’t do anything. If you look at the details the government’s financial exposure is minimal, and if lenders behave cautiously – which is there is every reason to presume they will, giving their recent reticence to lend at all – the risks should be minimised, especially if the government manages the situation effectively,’ he said.”

The Foreigner on Norway. “Estate agents are signalling people must be prepared for it to take longer to sell their homes. ‘The last three-month growth rate is now at 0.8 per cent if you calculate average growth from the previous three. It hasn’t been this low since 2009,’ senior analyst Katrine Godding Boye at Nordea said to Aftenposten. ‘This spring has been weak price-wise.’”

“Property sales major Eiendomsmegler1 CEO Odd Nymark said ‘We note that the market has been a little slower in the last three months. There are no housing types that stand out, it’s across the board. It’s is a bit strange since this is peak season.’”

“An Oslo resident Marianne Klemp told the paper she is still struggling to find a buyer for her central Oslo two-room apartment and has now had to reduce the price. ‘There was one person a day who came to the first two viewings and a total of about five people at the next ones. I’ve just got an offer of 200,000 below the sales price, but it’s 150,000 less than what I paid for it two years ago,’ she explained.”

Bits Bucket for June 17, 2013

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