October 28, 2014

The One-Time Money Machines Aren’t Selling

A report from the New Zealand Herald. “A do-up North Shore property with basic facilities, exposed plywood floor panels and an overgrown yard strewn with junk is for sale for $629,000 - $269,000 above its capital valuation. The 70sq m three-bedroom, two-bathroom fibre-cement unit in Milford sits on a small, 140sq m section. It’s shown in photos with bare and grimy plywood floors, dirty wallpaper and a weathered exterior including makeshift-looking PVC roofing. Current owner Bill Chamberlain, 50, said he bought the family house in 1984 and was selling up to take advantage of Auckland’s booming property market.”

“‘It’s not a case of what it’s worth. If people don’t want to buy this they need to spend $1 million on something else because there is nothing else out there, he said.”

The Sydney Morning Herald in Australia. “For Goldman Sachs, the worst is ahead for Australia and housing-bubble concerns will fade as the focus shifts to slowing jobs growth and inflation. The only hurdle keeping the Reserve Bank of Australia from adopting an ‘easing bias’ is a property boom, as mining investment is set to drop further along with raw material export prices and government revenue, said Tim Toohey, Goldman’s head of economics, commodities and strategy for Australia. A drop-off in mining investment is still to come and will probably have a greater negative economic impact than currently assumed, Toohey said.”

“Sydney home values jumped 14 per cent in the 12 months through September to a median $655,000, according to researcher RP Data. The average dwelling price across Australia’s major cities rose 9.3 per cent. ‘There’s really only one hurdle standing in front of the RBA in terms of adopting back an easing bias and it is pure and simply house prices,’ said Toohey.”

From Macleans in Canada. “Back in the 1980s, Ron Carey was sitting in a Calgary bar with a fellow oilman, reflecting on the great oil bust that had levelled Alberta’s economy, when he came up with the idea for a bumper sticker that would capture the grim mood in the province: ‘Please God, let there be another oil boom. I promise not to piss it all away next time.’ Three decades later, Carey, now 75, has watched another boom grip the province and is ready to print another run of those stickers if need be.”

“That’s because he sees worrying signs of another bust on the horizon: soaring wages, ‘ridiculous’ house prices and people living ‘high on the hog’ because they assume the good times will go on forever. ‘There’s not many people out there today who even remember,’ he says. ‘It’s 34 years ago. Most of the people who went through that mess are either retired or close to retiring. So you have a younger generation that doesn’t even know what a real recession is.’”

Reuters on China. “China’s largest residential property developer, China Vanke Co Ltd, said its gross margin fell 1.1 percentage points to 23.8 percent from a year earlier, squeezed by sliding home prices and expensive land costs. ‘Oversupply of properties will remain in the market in the short term and the inventory of new properties in the market will further increase,’ the company said in a statement.”

“Developers are also turning to new marketing techniques to lure buyers without sacrificing margins. Discounts can still run into the hundreds of thousands of dollars but increasingly property marketing looks to simply to create a buzz around new projects, analysts said. China Vanke plans to offer free accommodation for a year in some of its new apartments, as long as its guests share their experiences on social media. ‘Consumers are too used to price cuts and promotions like ‘buy one get one free’, so they want new gimmicks,’ real estate consultancy Knight Frank senior director Thomas Lam said.”

Today Online in Singapore. “Prices of Housing and Development Board resale flats fell by 1.7 per cent in the third quarter of the year, the steepest decline since 2005. PropNex Realty chief executive officer Mohamed Ismail expects prices to soften 6 to 7 per cent for this full year. Mr Ismail does not expect a turnaround in resale prices this year, given a ‘looming flood’ of new homes and the continued impact of property measures. Resale prices could fall 5 to 6 per cent more next year, mainly due to more second timers collecting their keys to their Build-to-Order flats, he said.”

The Star Online in Malaysia. “A finding by US-based urban development researcher Demographia reveals Malaysia’s residential housing market is ’severely unaffordable,’ even more out of reach than residents in Singapore, Japan and the United States. National House Buyers Association honorary secretary-general Chang Kim Loong points out the risks posed by ‘Investors’ Clubs’ or ‘Millionaires Clubs’ which are basically syndicated speculators incorporated by some ingenious individuals.”

“‘They work in cahoot with developers, valuers and banks. Speculative buyers may be caught by the latest round of cooling measures. How the situation will pan out will depend on the holding capability of these speculators of which most of them may not have. Come hand-over time when it is time for these ‘investors’ to flip their purchases, there may be a shortage of buyers for these properties, most of which were transacted at inflated and not real market value prices,’ he warns.”

The Financial Times in the UK. “I have a friend who has been trying to sell a central London flat for eight months. Another has had a large house on the market for six months. They can’t understand why these one-time money machines aren’t selling. Prices aren’t rising as they were either; they are, says Strutt & Parker ‘being adjusted down by about five to 10%.’ Anecdotal evidence suggests prices are down rather more than that.”

“Why now? Politics. Last week brought us news that the UK public sector deficit is not falling, but rising. It leaves property taxes as pretty much the only way of paying for political promises. Property taxes aren’t just about the deficit. They’re also a symptom of a horribly distorted market. Successive governments have done everything they can to push house prices up – with super-low interest rates, tax breaks for buy-to-let, Help to Buy and so on.”

“That’s why, measured by interest burden, UK houses prices have rarely been more affordable. But on measures of earnings they have rarely been so high. The state can’t let this huge market distortion go too far, particularly in London. So, in the absence of the courage required to normalise interest rates, the government is forced to put bad policy on bad policy to dampen prices. Hence, new affordability tests on mortgages – and another reason why rising property taxes are inevitable.”

Bits Bucket for October 28, 2014

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