November 18, 2014

To Absorb The Supply, Prices Will Have To Weaken

Stuff reports from New Zealand. “Auckland’s galloping property market is already outrunning the latest rates valuations, released frenzied anticipation. Loan Market mortgage adviser Bruce Patten said he had already seen a property assessed by a valuer as worth $715,000, when its new council valuation was $620,000 – a difference of $95,000. Another property had a new capital valuation of $590,000 and had a new CV (capital valuation) of $530,000. ‘Because they were actually done six to eight months ago, they can get way off kilter. At the higher end it’s hit and miss. We say do not think that the capital valuation is the value of your house, the value of your house is what someone is prepared to pay for it.’”

“Recent sales figures supplied by Ray White and Loan Market showed a Massey home selling for 22 per cent more that the latest CV. On the other hand, a Westmere house sold for 21 per cent less than it new CV of $1,480,000.”

Bloomberg on the UK. “Ruth Marchand said her six-bedroom house in the leafy south London village of Dulwich would have sold within six weeks if she’d offered it earlier this year. Instead, she’s still waiting for the first bid two months after the property went on the market. ‘Nothing is selling now,’ said Marchand, who said she doesn’t expect a deal before Christmas. ‘Any comparable houses in the area are still on the market.’”

“Owners who offered properties for sale in the most- expensive districts earlier this year are having to cut prices as more homes come onto the market at lower values, Countrywide Plc, the U.K.’s largest real estate agency, said Oct. 30. ‘The supply and demand dynamic that had proved such a boost during 2013 has largely gone into reverse’ in London, RICS said Nov. 13.”

CBC News in Canada. “What was a booming real estate market has flattened out and turned to a buyer’s market. The planned condos for the old Newfoundland Telephone building in downtown St. John’s are now instead being listed as an executive rental project. ‘We’ve come through an aggressive growth cycle over the past five years,’ said Chris Janes, the senior market analyst with the Canadian Mortgage and Housing Corporation. ‘It’s not sustainable for the market to continue at that level and so that’s where we appear to be now … more in the downward slope, I guess, of that cycle for lack of a better term.’”

“On the condominium side of things, new condo after new condo is sitting empty and unsold. Janes has a word to describe the condo market: ‘oversupplied.’ ‘There are a fair number of completed new units in particular that are for sale and have been sitting on the market now in excess of six to 12 months, and the majority of these units would be targeted to the higher end of the market, or what we would call the executive level,’ said Janes.”

The Malaysian Star. “The property market in Singapore, described by a developer ‘to be in a (state) of slumber’ and by a Singaporean analyst that it ‘could get worse,’ may pose a challenge to some Malaysian developers. A report by Maybank Kim Eng forecasts ‘up to a 15 per cent decline in home prices from mid-2014 to end of 2015′ while property consultants say prices in some locations have already dropped by as much as 30 per cent from their launching price. A Bloomberg repor says home prices on Sentosa had fallen by about 40 per cent since 2012, compared with a 28 per cent drop in 2008, the year when Lehman Brothers fell, precipitating the global financial crisis.”

“Analyst Ng Wee Siang from Maybank Kim Eng says in an Oct 27 report that the ‘property market is not a pretty sight.’ His prognosis is based on three factors - vacancy rates for non-landed private homes, excluding executive condominiums, have risen to 8.3 per cent, their highest in eight years. ‘Secondly, current seemingly high rental yield spreads could reverse when interest rates start to rise in 2015.’ A massive supply of new homes - 63,000, of which 6,038 are unsold - could tip the balance in 2015 as household formation tapers off. ‘To absorb the supply, property prices and rentals will have to weaken, a consensus view,’ he says.”

Mortgage Business in Australia. “According to S&P managing director and chief economist, Asia Pacific, Paul Gruenwlad, the weakening Chinese property sector is a significant risk for Australia if China’s government fails to adjust policy settings to keep the bottom from falling out of the market. Mr Gruenwald said that during a recent visit to the world’s second largest economy the local expectation was that property prices only go one way. ‘As economists and analysts we should all get very nervous when the expectation is that prices are only going to go up,’ he said.”

“The risk is the intersection of China’s shadow banking or non-bank credit boom going into the interest rate sensitive sectors like housing, Mr Gruenwald said, adding that the market has already started to turn. ‘We now have prices falling in 69 of the 70 cities that report in China,’ he said. ‘Everything is softening now in China and the question is: can the government adjust the knobs and keep the thing going or are we in for something more serious?’”

The Epoch Times on China. “Beijing’s indifference to the international anti-tax evasion campaign forms a sharp contrast to its highly propagandized effort to hunt down runaway officials. For Chinese, however, hunting corrupt officials and recovering taxes are two very different things from an ethical perspective. The former targets corrupt officials who fled the country with illegally obtained assets, while the latter involves all wealthy Chinese who have transferred their wealth abroad.”

“The International Consortium of Investigative Journalists revealed that nearly 22,000 offshore clients with addresses in mainland China and Hong Kong hold companies in tax havens. Among them are relatives of the ‘red nobility,’ the wealthy, and Chinese congress members, according to the report. ‘By some estimates, between $1 trillion and $4 trillion in untraced assets have left the country since 2000,’ the report stated. Compared to the 800 billion yuan that corrupt Chinese officials took abroad, the $1-4 trillion is a much larger amount. Furthermore, quite a large portion of the $1-4 trillion was obtained illegally.”

“The United States, Canada, and Australia are the defecting officials’ top choices since these traditional immigration targets provide good living conditions and high-quality education. It is said that ‘corrupt official neighborhoods’ and ‘corrupt official offspring villages’ can be found in these countries.”

The Hurriyet Daily in Turkey. “The price of new houses in Turkey increased by 7.3 percent in October compared with the same month of the previous year, according to the Reidin-GYODER New House Price index, which was released on Nov. 14. Around 13,611 real estates were sold to foreign buyers in the first nine months of the year, an increase from 12,181 the year before. But high-end properties were not popular this year.”

“Nizameddin Asa, president of Istanbul’s Real Estate Association, said that there is now no activity in the market for high-end real estate. ‘There are too many construction projects for luxury houses, but buyers are limited for such projects due to high prices. The unit cost in a luxury project in Istanbul starts at $10,000 per square meter (10.76 square feet). You can see from how many commercials are on television for these luxury projects, that they cannot sell,’ Asa added.”

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