September 17, 2013

Caught In A Trap Of Ambitious Expansion

Bloomberg reports on China. “Matthew Zhou and his wife spent 1.6 million yuan ($261,000) to buy a two-bedroom apartment last month in eastern Shanghai after seeing no potential for long-term returns in China’s financial markets. ‘Home prices keep rising, so I’d rather buy a place now than put the money in the stock market,’ said Zhou, a 30-year-old information technology engineer at a state-controlled bank in Shanghai, who plans to leave the home empty while the couple live with her parents. Gains in equities ‘could never outpace the growth of home prices,’ he said.”

“Michael Chang, a 33-year-old investment manager in Shanghai, spent 1 million yuan on a 20-square-meter, one-bedroom place in Beijing in August last year and 5 million yuan on a 130-square-meter unit in Shanghai this year without borrowing any money from banks, to expand his personal real estate portfolio. He wouldn’t say how many properties he owns. ‘Let’s talk about bubbles when home prices in Beijing and Shanghai rank as the world’s top five most expensive cities,’ said Chang, who believes home prices in Shanghai will rise 50 percent in the next five years.”

“Home prices in Sydney are being pushed up in part by unprecedented levels of Chinese demand, according to McGrath Estate Agents. As much as 80 per cent of homes in parts of Sydney are being sold to Chinese buyers, said chief executive John McGrath. At a recent property auction in Eastwood, all 38 of the registered bidders were of Asian ethnic origin, Mr McGrath said. The three-bedroom house sold for $2.39 million, more than $1 million over the reserve price, after 62 bids by eight hopeful buyers, according to the agent.”

“‘I haven’t seen a trend like this in 30 years, in terms of a brand new demographic group entering the Australian market with so much impact as I’ve seen in the last 12 months,’ Mr McGrath said in a separate interview with Bloomberg Television. ‘There are long-term growth prospects but the current growth rates probably need to slow at some point soon.’”

The Press in New Zealand. “Big pressure is building on Canterbury’s housing market as buyers try to beat a lending clampdown and real estate stocks reach record lows. Christchurch mortgage broker Rob Parsons has seen a ‘groundswell’ of first-home buyers seeking pre-approved loans to beat higher deposit requirements. ‘Prices keep getting out of their reach. There are so few homes on the market and, when they go to auctions, there are 10 others bidding and it goes for $100,000 over what they thought. I think there will be panic buying.’”

“Principal agent Gavin Topp said there was so little stock that homes were attracting offers on the first day. ‘We’re advising owners to put their houses on the market now. We’re advising buyers not to wait for 10 out of 10 - just get your name on a title even if you have to compromise with seven out of 10,’ he said. ‘They are never going to save as quickly as the market alters.’”

FirstPost on India. “India’s housing market is losing steam as housing supply is increasing but sales are plummeting. According to the latest report by property research firm Liases Foras, 146.10 million square feet of inventory lay unsold in the Mumbai Metropolitan Region (MMR). Piling up of unsold inventories has put pressure on returns, and this will continue through the year, said industry experts. ‘The real estate developers have been caught in a trap of ambitious expansion, decelerating sale, hardening interest rate, and weakening cash flow. Unlike the earlier occasions, the sector now has no bailout package and alternate funding options have also dried-up,’ said Samanthak Das, head-research, at Knight Frank.”

“Experts believe that Lodha Developers and Indiabulls are too slugging it out at Lower Parel and Worli. In January, Lodha upped the ante by launching a project – Blue Moon – 40 percent lower than the market rates.”

From India Today. “The much-awaited price correction seems to be finally happening. Builders, meanwhile, continue to launch new projects and use innovative marketing to improve sales. ‘Despite the poor economic sentiment, residential supply spiked during the January-June period. More than 65,000 units were launched in the leading cities compared to about 48,000 during the second half of 2012,’ says the CBRE South Asia report.”

The Hindu Business Line on India. “The year was 2007. The real estate market, like the Indian economy, was on a roll. And Manish Khanna was busy house-hunting in Mumbai. But every weekend, when Khanna sought to finalise a deal, the prices would have risen by Rs 200 to Rs 300 a square foot over the previous week. When he finally bought a flat in Navi Mumbai’s Nerul locality, Khanna paid Rs 5,200 a sq. ft. for a property that had cost Rs 4,200 a sq. ft. when he first checked it a month earlier.”

“Those were the heydays of real estate. Incomes were growing and so was the demand for real estate, while property supplies were limited. Cut to 2013: builders are sitting on piles of unsold inventory and debt, demand has slowed down in metros and big cities, projects are stalled, private equity firms are exiting the sector and new projects are selling at discounted rates. The long real estate party finally seems to have come to an end.”

“‘A correction phase has started. The market has shifted from investors to end users. Investors cannot hold on to properties forever and this supply is coming back to the market at discounted rates,’ says Pankaj Kapoor, founder and MD at real estate consultancy Liases Foras.”

CBC News on Canada. “New rules designed to cool hot housing markets in Toronto and Vancouver could send a chill through Ottawa’s real estate sector, according to an Ottawa real estate expert. Last week the Canada Mortgage and Housing Corp. put a cap on the amount of mortgage-backed securities sold by banks that it is willing to guarantee. ‘It’s unfair that stable markets like Ottawa and some of the smaller communities are being impacted by events that are going on in Toronto and Vancouver. It’s too bad they can’t just target those two markets and leave the rest of the markets alone,’ said Ansel Clarke, the former president of the Ottawa Real Estate Board.”

“Matthew Sarabura and Chan Nguyen have been trying to sell their Sandy Hill condo since March, but they say no matter how much they renovate and drop down the price, but haven’t had any luck. They’ve since taken the home off the market and are renting it out. ‘It’s very disheartening. It’s overall disappointing,’ said Nguyen. ‘There are all of these people coming looking to buy apparently, but nobody seems to be putting down any money,’ said Sarabura.”

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