July 16, 2013

When The Price Is No Longer Rational

Some housing bubble news from around the globe. The Myanmar Times, “There is no bubble in the property market and prices of land will continue to rise for the next few years, presidential adviser U Aung Tun Thet told a seminar. Property ‘flipping,’ in which properties are bought and sold on the same day, is likely in the future, he added. Flipping could lead to competitive prices, he told the seminar. ‘We’ve seen that property price have reached twice the prices of neighbouring Thailand,’ he said, pointing to industrial zones near Yangon like Hlaing Thar Yar where an acre of land sells for US$530,000 – 12 times higher than a similar plot in Orlando, Florida.”

The Jakarta Post. “Bank Indonesia (BI) is planning to curb the soaring property and housing prices — attributed to pervasive speculations — expressing its concern over a possible bubble in the fast-growing credit segment. Currently, there are 35,002 debtors with two or more mortgages, with their outstanding loans amounting to an eye-popping Rp 31.8 trillion (US$3.18 billion), BI data shows. At least 3,800 debtors have three to nine mortgages, while a small number of debtors even as many as fifteen mortgages. The mortgages finance the purchase of houses for speculative purposes.”

“BI Deputy Governor Halim Alamsyah said the country’s low-interest rate regime had encouraged speculative play as people apply for mortgages for investment, rather than residential, purposes. ‘Based on our study, those type 70 [square meters] and above have a tendency of bubble, because the price is no longer rational,’ he told reporters.”

From China Daily. “Burdened by overcapacity in manufacturing, local governments are finding the current downturn more difficult to cope with than the 2008-09 crisis. Central government officials have expressed their commitment to leading the economy away from its investment-reliant, credit-driven growth model. ‘If local governments succeed in persuading the central government to bail them out, the task of cutting overcapacity can never be accomplished,’ said Guan Qingyou, assistant dean of the Minsheng Securities Research Institute. ‘We experienced the same situation in 2008-09. We cannot afford to make the same mistake again.’”

“Despite the slowdown in industrial output, local governments in general still posted a decent growth in fiscal revenue. From January to May, fiscal revenue at local levels rose 13.4 percent from a year ago. The reason is that they accelerated their pace of selling land. According to housing brokerage 5i5j, revenue from selling land in the first half of this year for 306 local governments soared by 60 percent to 1.13 trillion yuan ($184 billion). But economists said the overwhelming reliance on land sales is not sustainable.”

The Telegraph in Australia. “Industry experts said a big increase in first homebuyers entering the market in the past financial year had stolen back the momentum from landlords and investors. Figures show the number of vacant rentals in the metropolitan area doubled in six months to 4,066 at the end of June. First homebuyer Jake Buswell, 22, who snapped up a $395,000 three-bedroom, one-bathroom home in Orelia in June, said it was the right time to buy. ‘I’d just finished university and it was something I’ve been looking to do for a while,’ he said. ‘I thought if I get in now, I’ll get in before prices go up.’”

SunLive in New Zealand. “John Key is shutting thousands of first home buyers out of the market with his plans to impose lending limits for home mortgages, Labour’s Housing spokesperson Phil Twyford and Finance spokesperson David Parker said. ‘Prices are spiralling out of the reach of first home buyers. Putting lending limits on banks will prevent poorer families becoming home owners. It advantages property investors and locks out first home buyers,’ says Phil Twyford.”

“‘John Key is completely out of touch. The problem for first home buyers isn’t lending, it’s the lack of affordable homes. House prices are increasing because there are too many speculators in the market and very few new homes are being built in an affordable price range,’ said David Parker.”

The Moscow Times. “There are 96 apartment buildings in Moscow that are more than 26 stories high. A third of them are new properties coming on to the market, according to a study that the developer Gras Group released. Prices are expected to jump from the current average of 285,000 per square meter to 480,000 rubles per square meter in five years, according to Yevgeny Shevchenko, commercial director at Gras Group. Despite the steep prices, customers are willing to pay more for skyscraper apartments. Sixty percent of Gras Group clients buy the apartments on the high floors as an investment.”

“‘We speculatively overcharged for the last three floors. On one hand it was something of an experiment and, on the other, a rather good move,’ Shevchenko said about Gras Group’s high-rise complexes. ‘As soon as you raise prices on the last three floors, a person comes along who wants to buy the most expensive apartment.’”

Investment & Business News on the UK. “According to Halifax data, the ratio of average house prices to the national earnings average for men is currently 4.58. It has been higher – 5.83 in July 2007, but in January 2000 the ratio was 3.37. In March 1989, just before house prices crashed, the ratio was 4.97. In April of this year inflation –as measured by the CP index – was 2.4 per cent. Average wages, including bonuses, rose by 1.3 per cent. In fact inflation has been greater than rises in wages every month since May 2010. Households are struggling, as indeed they have been for a long time, yet house prices are rising.”

“Working out why is not rocket science; it is because interest rates are at record lows; it is because of the government’s own schemes to kick life into the market, and it is because of lack of supply, which is not helped by planning regulations that need reforming. Maybe there is another factor at play, too. It is as if there is something hardwired into the British psyche – an inbuilt belief that house prices only ever rise; that your home is an investment; that there is this thing called a housing ladder upon which you need to climb, and ascend as soon as possible.”

“All of these assumptions are open to debate, but in the UK they are rarely even questioned. Such attitudes can become self-fulfilling. In the short run, rising house prices are good for the economy. But we have been here before haven’t we? We were here in 2007. The truth is that the UK boom of the mid noughties, and recent rises in spending have been fuelled by falling savings.”

“Greater savings leading to greater investment could create an economic recovery that is sustainable. Alas instead, savings seem to fund credit for the mortgage industry. Instead of more investment, we get higher house prices. It is a vicious circle, and – as far as the UK is concerned – it really is vicious.”

The Calgary Herald. “Housing starts in the Calgary region dropped sharply in June, according to a report by Canada Mortgage and Housing Corp. The agency said total starts in the Calgary census metropolitan area fell by 23 per cent compared with June 2012 to 912 units. The plunge was primarily the result of a decline in multi-family starts of 45.2 per cent to 358 units. Meanwhile, the single-detached market saw starts increase by 4.3 per cent to 554 units. Canadian housing starts dipped 2.5 per cent in June to 199,600 annualized units.”

“While the pace of construction over the first six months of this year suggests that construction has cooled, the recent string of near 200,000 housing starts over May and June is a pace of new homebuilding that may be too strong to sustain on an ongoing basis, said Diana Petramala, economist with TD Economics. ‘There is an estimated oversupply of 250,000 new homes, about a year’s worth of construction activity, many of which are under construction now and will likely start to hit the market over 2013 and 2014,’ she said.”

Bits Bucket for July 16, 2013

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