October 20, 2014

Confidence In The Property Market Is Collapsing

The Globe and Mail reports from Canada. “An analysis of local incomes released last week by and urban planner Andrew Yan, showed that 25- to 55-year-olds with BAs in Vancouver make about $41,000 a year, $10,000 a year less than the median for Canada and $20,000 less than in top-paying Ottawa. The spread was even worse for people with master’s degrees– as though employers realize people are so desperate to be in Vancouver that they can pay them less. ‘The relationship between incomes and prices of homes has totally broken down here,’ said Andrew Ramlo, a director at Urban Futures.”

“Eesmyal Santos-Brault, a green-building consultant, bought his first condo 10 years ago when he was 28 and working at a non-profit for near minimum wage. He didn’t think he’d even qualify for a mortgage, but his mother, a real estate agent, offered to lend him the $7,000 he needed for the minimum down payment. To his surprise, he found the bank would indeed lend him money. ‘I keep telling all my artsy, environmental friends that they should do this,’ says Mr. Santos-Brault, who has since bought a townhouse in Strathcona while renting out the condo. And he worries that people are handicapped by the attitudes they’ve inherited from their families or social circle.”

“‘They don’t know anyone who owns, they don’t understand money, they just don’t think it’s possible. I keep telling them: ‘It’s a conspiracy to keep you as renters. Then you can pay someone else’s mortgage,’ he said.”

Dow Jones Business News. “Hong Kong has one of the world’s biggest wealth gaps and its highest real-estate prices. Years of stagnant wage growth have created deep frustration among students and the middle class. One target of their frustration is the city’s tycoons, a handful of families and colonial era conglomerates that control most of the real estate. Even as thousands of protesters took to the streets, the property arm of Li Ka-shing, who Forbes says is worth about $31.4 billion, was unveiling apartments that totaled 165 square-feet. The apartments, about the size of a one-car garage, haven’t been priced yet, but slightly larger units have recently sold in the city for between HK$1.77 million and HK$3.6 million ($228,000 and $464,000 U.S.).”

“Ka-shing said in a statement that he understood the ‘passion’ of Hong Kong students but urged them to go home. The tycoons’ words don’t resonate with young protesters such as Arnold Chung, 19, who expects to live with his parents for years. Average starting salaries for university graduates have risen 1% annually over the past 17 years, to 198,000 Hong Kong dollars (U.S. $25,522) a year, lagging behind inflation and lagging far behind the rise in housing prices. ‘The young generation doesn’t listen to Li Ka-shing,’ said Mr. Chung, a student. ‘We expect rich people to say this (protest) will disturb the economy.’”

The South China. “The crisis facing Hong Kong-listed Agile Property Holdings after its chairman was put under house arrest has aroused investor concerns about how widespread President Xi Jinping’s anti-graft campaign will be in the struggling property industry. Qi Jingmei, a senior researcher at the State Information Centre, a government think tank in Beijing, told the South China Morning Post that corrupt government officials should be worried, but not competitive developers. ‘It will not harm the development of the whole real estate industry,’ she said. ‘But it’s not bad to wash out some weak developers through such a campaign.’”

“A housing glut continued to plague the industry and developers needed to strengthen their corporate management during the downturn, Qi added.”

“Li Junheng, the head of research at JL Warren Capital, a New York-based independent equity research firm with a China focus, said: ‘Widespread corruption in itself is not new news, but fraud investigations and consequential funding cutoffs are material headwinds for developers.’”

The West Australian. “Confidence in the Perth property market is collapsing, a new national survey has found. It is even worse for landlords, with rents expected to fall over the next two years. Confidence in the Perth property market is now at its lowest level on record with most of the fall taking place over the past six months. NAB chief economist Alan Oster said the survey had found strong activity by foreign buyers in all States. In Victoria they accounted for almost one in every four new property sales.”

“Another issue uncovered by the survey was housing affordability concerns linked to growing concern among homeowners about the state of the jobs market. ‘This was not surprising given recent strong house price growth and rising trend unemployment,’ Mr Oster said.”

The Advisor in Australia. “In recent weeks debate has raged on the best way to cool the market; one school of thought being meddling with lending rules, the other – espoused by building and real estate associations – to simply increase the supply of homes. Aussie Cranbourne franchisee Michael Spalding has warned that new homebuilding may not be music to brokers’ ears. ‘I operate in an area which is rife with new home construction, and I haven’t noticed a boost in business,’ he said. ‘There seems to be a lot of building going on, but I have no idea where people are getting the money from to buy.’”

The Irish Independent. “Three weeks ago, The Sunday Independent conducted a ‘blind shopper’ exercise which revealed that some banks were offering up to five times people’s salaries and asking for deposits of less than 10pc, desperate to start lending again. The Central Bank reacted. In fact it seems to have overreacted, bringing in strict new rules that are more restrictive than almost anywhere else in the world. ‘For someone on an average salary to save 20pc of the cost of the average starter home, especially if in the meantime they are renting, will take three years, five years, longer,’ says Keith Lowe, CEO of one of the country’s biggest estate agents. ‘These proposals mean a deposit of €50,000 on a property that costs just €250,000, which in Dublin will barely buy you a two-bed apartment. That takes years and years to save.’”

“A rake of international private equity houses and investors poured into the Irish residential property market in the wake of the recession. Major investment firms such as Lone Star and Kennedy Wilson own thousands of Irish homes. They now face a vastly-changed market - and they are spooked, according to Lowe. ‘I had one of the biggest on the phone to me yesterday, asking me should he be concerned,’ said Lowe. ‘These guys are worried, particularly by the pace at which this is all happening.’”

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