July 1, 2013

Speculation And Blind Investment In The Anti-Bubble

Some housing bubble news from around the globe. Fund Web, “A senior Bank of England official has refuted criticism that quantitative easing has created fresh asset bubbles in the world’s financial markets. External Monetary Policy Committee member David Miles argued that the Bank’s QE programme has helped to stop an ‘anti-bubble’ - or a downward spiral in asset prices - rather than artificially propping up markets. ‘There is a world of difference between supporting asset prices so as to prevent a self-reinforcing downward spiral in values and creating a bubble,’ he said. ‘Indeed preventing a downward spiral – because it stabilises both asset prices and the wider economy – is pretty much the opposite of blowing up a financial market bubble.’”

The Business Standard on India. “If you travel on the road to Noida and Greater Noida, you will find a large number of banners and hoardings of new residential real estate projects on both sides of the road. The moment you get close to construction sites, salesmen of property dealers descend on you like a horde of bees. Start talking to them and you will be offered discounts of up to 9 per cent on the published price straightaway. So are they desperate to sell their flats? Is this the first sign that the real estate bubble is all set to burst?”

“The pile-up of unsold inventory surely points towards that. The numbers have almost doubled in the last three years. In spite of this, prices are on the rise. ‘The residential sector is immune to economic conditions as it is driven less by demand and supply and more by the excess cash in the economy,’ says Aniruddh Wahal, managing director of real estate consultant DTZ India. ‘Hence, there is no real bubble in the realty sector. As long as cash is pumped into the realty sector, the developers will sustain this period of low liquidity and not resort to price cuts as their target audience is investors and not the end users.’”

The News on Pakistan. “Property prices have shot up in the twin cities of Islamabad and Rawalpindi – as the law and order situation continues to force residents to go there from other parts of the country. This is particularly true of Karachi – which has seen a massive influx to the twin cities and also to Dubai. ‘The prices have doubled in Islamabad and its adjacent areas,’ said Malik Zulfiqar a real estate dealer at Hussain Builders and Properties in Islamabad.”

The Daily Nation on Kenya. “Kisumu is set to be the economic hub of western Kenya, thanks in part to thriving property development in the city. According to Mr Aban Eban, the managing agent at Tom and Company Agencies, the region around the airport was a ghost town after 7pm but real estate development and lighting along the road has encouraged development. ‘Areas adjacent to the airport were bought by investors when they got wind that the airport would be developed. They are now selling at triple the price,’ Mr Eban said. He sold his quarter-acre to an investor for Sh5 million last year and today it is valued at Sh20 million.”

“Mr Wycliffe Abok, the operations manager at Kisumu Real Estate, has also come up with gated land parcels for affordable prices. ‘This will ensure that no resident is left out of the investment rush. Plots measuring 0.02 of a hectare are now available for between Sh65,000 and Sh250,000, depending on the location,’ Mr Abok said.”

Construction Week on Doha. “The market for apartments and villas in Doha is likely to ‘experience strong demand over the short to medium term,’ according to property consultancy Colliers. The report added that although average property sale prices have dropped by 38% since the market peak in 2008 to $3,341 (QR: 12,167) per m2 and rental prices have dropped by 27% to $175 (QR: 639) per m2 in the same period. Despite this, sales and rental rates both grew marginally over the past 12 months.”

“Current occupancy levels in Doha hover at around 85%, although in prime areas like West Bay and the Pearl this has reached 90%. ‘However, the 10% vacancy cannot be regarded as an oversupply situation, but instead a ‘floating’ vacancy rate, seen predominantly in newer developments,’ Colliers stated in its report. ‘A flight to quality is also being observed as tenants are taking advantage of competitive rentals offered by landlords, and are moving into better quality units.’”

The Standard on China. “Tight liquidity in the mainland is helping to temper land prices and may be deterring developers from acquiring more sites. A commercial plot in a Beijing suburb attracted just three tender bids yesterday at prices much lower than a similar site in the same area sold in April. The offered prices ranged between 1.3 billion yuan (HK$1.63 billion) and 1.45 billion yuan, People’s Daily reported. With a total gross floor area of 105,400 square meters, that comes to 13,757 yuan per square meter based on the highest price. In April, a similar site in the area was sold for 21,300 yuan psm.”

From China Daily. “Wide-ranging credit tightening by Chinese commercial banks is likely to spill over into the property market, and analysts said small and medium-sized developers may cut prices later this year as cash gets scarce. Zhang Hongwei, research director of Shanghai-based property consultancy ToSpur, warned that developers who poured a lot of capital into stockpiling land in the first half may be hit hard. ‘The most effective way to claw back capital is to mark down prices at property projects,’ said Zhang.

“Hui Jianqiang, research director of Beijing Zhongfang-yanxie Technology Service Ltd., said the spike in housing prices has outpaced the growth of GDP over several years, and it’s time for ‘a correction’ of the housing market boom, which is still being fueled by speculation and blind investment.”

Singapore Business Review. “According to Colliers International, the Singapore property auction market was relatively quiet in 2Q 2013, with both sale volume and value paling in comparison to that recorded in 1Q 2013. The total sale value of S$7.05 million in 2Q 2013 reflected a 91.6 per cent plummet from the S$83.44 million recorded in 1Q 2013. Only 4 properties were sold in 2Q 2013.”

“Ms Grace Ng, Deputy Managing Director of Colliers International, says, ‘Subdued market activity was further perpetuated by the persistent stalemate between buyers and sellers. While owners are holding on to their property, waiting for an offer that meets their price expectation, home buyers who now have to fork out larger cash outlay – due to the increase in ABSD, higher cash down payment and lower loan-to-value ratios – may take a more discretionary view of home buying. Coupled with the threat of a possible increase in interest rates, some buyers have also adopted a wait-and-see attitude in anticipation of a possible price fall.’”

“Together with concerns on the significant supply of residential units in the pipeline – with some 110,000 public home units and 90,000 private home units including executive condominiums slated for completion by 2016, buying interest in the private residential market could also be impacted.”

The Courier Mail on Australia. “Property sellers who didn’t hold onto their homes for long enough, took a $463 million bath during the March quarter selling their homes for less than they originally paid for them. RP Data national research director Tim Lawless said the likelihood of whether a property sale was at a profit or loss was often affected by how long it had been owned for. Only 8 per cent of properties bought before January 1, 2008 and sold in the March 2013 quarter were sold at a loss. Homes bought on or after that date were more likely to sell at a loss.”

“‘The weakness in Queensland is mostly reflective of the conditions across the lifestyle markets such as the Gold Coast, Sunshine Coast and Far North where the correction in home values has been more significant,’ Mr Lawless said.”

The Christian Science Monitor on Mexico. “When Jorge and María Arzave moved their family into a two-room house on the outskirts of Mexico City, they were elated. But today, their dream home has a ‘high risk’ sign posted over the front door, courtesy of a state civil protection agency. The house is barely 10 years old and it’s breaking apart. Poor and faced with indifference by the government and developers, some have simply abandoned their homes. Arzave says he holds keys to the homes of five neighbors who have left the troubled development.”

“The number of vacant homes soared, going from 2.4 percent of housing in 2005 to nearly 14 percent in 2010, according to census data. Some 5 million homes were classified as abandoned across the country in 2010, according to the latest census, with many buyers wondering if continuing to pay for them was worth the pride of ownership. And some of the homebuilders that benefited from the low-income housing boom are now facing cancelled credit lines and lawsuits by their lenders.”

“Infonavit, created in 1972 and one of a handful of state-backed housing lenders, is arguably the most important player in Mexico’s housing finance system, says Paavo Monkkonen, assistant professor of urban planning at UCLA’s Luskin School of Public Affairs. ‘It’s a good deal, especially in a country where interest rates are so high,’ says Mr. Monkkonen. ‘But I think a lot of people got loans to buy a house they didn’t really want. Even when governments want to put money into housing finance, it’s hard to get developers to build houses that are affordable.’”

“In Arzave’s home, piles of documentation sit on his double bed, which takes up most of the front room. Despite the hurdles, he hasn’t given up his fight, he says. He wants the government to move his family to a new home, one that isn’t sinking. ‘They told us they were giving us a life of dignity,’ he says. ‘The reality is another.’”

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