December 9, 2014

Selling Pressures Are Starting To Build

A report from the Irish Independent. “The Knight Frank Global House Price Index shows Ireland’s 12 month price growth of 15pc running at the fastest rate of all 54 countries surveyed. Ireland tops the table ahead of Turkey (14pc), Dubai and the United Arab Emirates (12.5pc) and the United Kingdom (10.5pc). However Dublin’s market looks like it has already cooled as we head towards the end of the year and many properties left on the market are now having their prices reduced. An investor surge expected at the end of the year following the expiry of capital gains relief has not materialised.”

From Arabian Business.”Dubai’s real estate market recorded its first quarterly house price decline in four years, with prices falling more than five percent between June and September, Knight Frank said. Knight Frank said the current mismatch between demand and supply is behind the fall. ‘Residential sales have fallen sharply in recent months and there is a steady stream of new schemes reaching completion, which in turn is exerting downward pressure on prices,’ the real estate consultancy said. ‘For the first time in two years the Global House Price Index came close to falling into negative territory. Muted growth in the third quarter comes on the back of jitters over the global economy, a lingering malaise in Europe and, in the US, a slower-than expected housing recovery.’”

The Calgary Herald in Canada. “Calgary housing starts tumbled in November, with experts warning plunging oil prices could further slow new home construction in the region. Wayne Copeland, president of the Canadian Home Builders Association-Calgary region, said the industry understands a decline is inevitable after what’s been one of its strongest years on record. A prolonged slump in oil prices could further reduce construction.”

“‘Even the economists are seeing that we’re going to be seeing some slowdown in the next year to two years,’ Copeland said. ‘Of course, tied in with the oil prices it’s kind of a double negative for our economy.’”

The Australian. “Melbourne’s housing market outperformed other capital cities over the weekend when more than 1400 properties went under the hammer, while competition continued to cool between bidders in Sydney where clearance rates remained underwhelming. Sydney recorded its lowest clearance rate in 18 months on Saturday as 1028 properties were put to auction, said Australian Property Monitors senior economist Andrew Wilson.”

“‘We had a very skinny clearance rate of 70.5 per cent in Sydney; the first time we’ve had four weekends in a row below 75 per cent since the end of 2012,’ Dr Wilson said. While the property market tends to slow down before the summer months when the industry takes a vacation, the figures pointed towards a ‘weakening in the market,’ Dr Wilson said. ‘Sydney has run out of steam and is now matching the auction energy in Melbourne.”

“Brisbane recorded a clearance rate of 35.2 per cent, Adelaide 68 per cent, Perth 38 per cent and Canberra 62.1 per cent, according to RP Data. Next weekend is the final ’super Saturday’ of auctions and is expected to break records for listing numbers, while the weekend after is likely to see just 500 or so auctions across both Sydney and Melbourne.”

The Business Times on Singpore. “ANZ Bank flagged in a report that Singapore’s population growth is not enough to absorb the new housing supply between 2014 and 2017, with record completions of new homes posing a ’supply shock.’ Daniel Wilson, economist for ASEAN and Pacific at ANZ Bank, said that he expects non-landed property rents to fall cumulatively by up to 10 per cent by the end of next year, given the time lag between changes in vacancies and rents.”

“About 80,000 units are in the supply pipeline - including units under construction and planned development - way above the long-term average of about 60,000 units. Some 80 per cent of these units are already under construction and many will be hitting the market over the next few years, according to Mr Wilson. Mr Wilson said that a vacancy rate of 7.5-8.5 per cent is deemed the tipping point at which ‘intensified downward pressure on property rents manifests itself.’ But the overall vacancy rate for private homes could rise to a higher 8.5-9.0 per cent over the next two years, he projected. ‘Though the supply pipeline is well-anticipated, its impact has not been tested,’ he said.”

From Barron’s on China. “Few foreigners know China as intimately as Anne Stevenson-Yang does. She has spent the bulk of her professional life there since first arriving in 1985. Q: What about the much-predicted popping of the Chinese real estate bubble?”

“A: It is already under way, though in seeming slow motion. Government price data, such as its 70-city report, aren’t all that helpful since the numbers are cherry-picked and manipulated. But we do know that sales volume has been dropping this year. The Chinese home real estate market, mostly units in high-rise buildings, is truly bizarre. Many Chinese regard apartments as capital-gains machines rather than sources of shelter. In fact, there are 50 million units in China that are owned but vacant. The owners won’t rent them because used apartments suffer an immediate haircut in value.”

“It’s as if the government created a new asset class that no one lives in. This fact gives lie to the commonly held myth that the buildout of all these empty towers and ghost cities is a Chinese urbanization play. The only city folk who don’t own housing are the millions of migrant laborers continuously flocking to Chinese cities. Yet, they can’t afford the new housing.”

“Q: What would be the impact of a significant drop in Chinese housing prices? A: A huge proportion of financial assets in China both in the banking and shadow-banking system are exposed to the real-estate market. All of China’s major corporations are speculating on residential real estate with either cash reserves or borrowed money. Who wants to build, say, a shipbuilding plant when a company thinks it can make a lot more speculating in the housing market?”

“Families have more than half of their wealth in housing, including the less affluent in recent years who have taken to buying fractional shares in luxury apartments and town houses. Local governments, which rely on land sales to developers and real estate transfer taxes for something like 35% of their revenue, would be in a bad way in a housing-price bust. The psychology bolstering the housing market is changing despite all the efforts of the government to control prices. People are starting to realize that housing isn’t a one-way street to future wealth, and selling pressures are starting to build.”

Bits Bucket for December 9, 2014

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