September 30, 2013

The Devil And The Deep Sea

Some housing bubble news from around the world. 4 News, “Another set of towers, in model form, are backlit in the suite of a 5 star hotel. Capital Towers is in fact a project in Stratford, East London. The flats are up for sale at events like this that span east Asia, and in Kuala Lumpur, 6,500 miles away. Buyers crowd around the models checking out the floor space and attractive features. This foreign sales drive is repeated in Hong Kong and Singapore, targeting investors across Asia. It’s a quite a sales job. Right now Capital Towers doesn’t actually exist: it is half derelict factory half hand car wash. But it is due to complete by 2016. Knight Frank calculate that 75 per cent of new builds are going to foreign owners, half of those from East Asia.”

The West Australian. “Despite a subdued economy, housing prices are rising two or three times faster than consumer prices and auction clearance rates are at three or four-year highs. Investors are taking a bigger share of new loans. Low interest rates are fuelling the fire. And stories of clearly out-of-the-ordinary prices are emerging - like the widely reported house in the Sydney suburb of Eastwood which sold for $2.39 million, beating the reserve price by over $1 million.”

“This sale, along with anecdotal evidence of strong demand from China, suggests the Australian residential property market could be suffering - or enjoying, depending whether you are a seller or a buyer - a spillover effect from China’s ongoing economic boom.”

The New Zealand Herald. “On the eve of new mortgage lending restrictions coming into effect, there are signs the first-home-buyer market has gone off the boil. Sam Bellairs of Glover Real Estate in West Auckland said that over the weekend, the agency’s three offices received only one offer on a house despite there being a usual number of listings. There were usually at least five offers. Yesterday, the Titirangi office received only one phone call, compared with the usual two dozen on a Sunday. ‘The phone has certainly got a lot quieter,’ Mr Bellairs said. ‘That’s a bit unheard of.’”

The Jakarta Post. “Bank Indonesia (BI) introduced on Wednesday a new mortgage regulation to help curb excessive loan growth and ease property speculation. ‘Our data shows that the amount of people owning more than one property has been increasing since 2010, when the figure was 4,700. It grew to 6,500 in 2011 and to 8,300 a year later. As of April, outstanding multiple mortgage loans stood at Rp 31.8 trillion [US$2.75 billion],’ BI communications department director Peter Jacobs said. ‘We expected that the mortgage growth rate would decelerate when we implemented a similar regulation last year. However, as it turned out the rate remained high.’”

The China Post on Taiwan. “Local property developers and sales agencies said Saturday that they are upbeat about the housing market despite growing concerns that the central bank will raise its key interest rates in the fourth quarter. Developers have launched NT$179.4 billion (US$6.06 billion) worth of residential property projects. It is second biggest amount in five years. Lai Cheng-yi, chairman of Shining Building Business Co., said the markets at home and abroad remain awash in liquidity in the wake of the U.S. Federal Reserve’s surprise decision in mid-September to continue its monthly US$85 billion bond buying program.”

From First Post. “Raghuram Rajan, the governor of the Reserve Bank of India (RBI), was in Frankfurt yesterday to receive the Fifth Deutsche Bank Prize for Financial Economics. In his speech he said things that would have embarrassed central bank governors of the Western nations, who are busy printing money to get their economies up and running again. And this has again led to several asset bubbles in different parts of the world. As Rajan put it in Frankfurt ‘We seem to be in a situation where we are doomed to inflate bubbles elsewhere. We should wonder whether lower and lower interest rates are in fact part of the problem, I say I don’t know.’”

“Why are they still continuing to print money? If they stop printing money then interest rates will start to go up and this will kill whatever little economic growth that has started to return. Hence, the choice is really between the devil and the deep sea. In the last paragraph of his speech Rajan said it is at such times that ‘excesses typically build up. One source of concern is housing prices that are at elevated levels around the globe.’ The central bank governors are ignoring what is going on before their eyes and that is not a good sign. Or as Rajan put it in Frankfurt ‘When they (central banks) say they are the only game in town, they become the only game in town.’”

The Independent. “Tim Redmond, a veteran Mission resident and former editor of The San Francisco Bay Guardian, sits in a café, grumbling as the Google buses come and go outside. Though he doesn’t much care for the start-up douchebags, Redmond blames not individual tech workers for the current crisis, but property speculators and the lawmakers who have let them take advantage of their precious commodity: space.”

“‘If we had a major earthquake in San Francisco, the water mains all broke, and some guy showed up with a water truck and started selling water for $10 a gallon, people would be pissed,’ he says. ‘That guy would be ridden out of town; he’d be attacked with sticks and pitchforks. But that’s what the real estate people are doing right now – and they’re getting away with it.’”

Bits Bucket for September 30, 2013

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