December 30, 2014

It Feels Like Some Sort Of Hard Landing

The Guardian reports from the UK. “The control of plans for tens of thousands of new homes in London is now in the hands of foreign investors who are increasing their grip on the capital’s prime property assets, figures obtained by the Guardian have revealed. Sites for close to 30,000 homes are owned by just 10 investors in Hong Kong, China, Malaysia, Australia, Singapore and Sweden, sparking warnings from politicians and housing industry experts that too many are being built to act as ’safe deposit boxes’ for international investors rather than for Londoners in housing need.”

“Tim Craine, director of Molior, a residential property research consultancy, confirmed the influx of Asian money was causing a surge in the number of homes being built but added: ‘They are being built at the wrong price. A one-bed flat for £1m is not going to solve anyone’s housing crisis.’”

The Irish Independent. “The spectre of long queues out the door returned in 2014. One house buyer, Ciara Cosgrove, spoke to Weekend Review earlier this year about heading out to view a house on a wild, stormy night expecting to be the only interested party to brave the elements. When she got to the address, there were 18 other couples ahead of her. ‘We’ve seen prices jump up all the time. A place that was €250,000 one week is valued at €260,000 the next. It’s like the Celtic Tiger all over again,’ she said.”

“Field reports from estate agents were redolent of the years immediately prior to the bubble bursting. ‘I showed a two-bedroom apartment at The Grange the other day,” said Brian Dempsey of Douglas Newman Goode estate agents. ‘And there were 52 people for that first viewing. I went back into the office and mentioned it to my colleagues as it was such a huge number, yet somebody else had shown a property that morning and 65 people had turned up for that.’”

“Dr Conor Skehan is one of the country’s foremost authorities on housing, so it came as something of a shock when he revealed he would rather stay renting than become a homeowner. With property prices spiralling upwards in Dublin, he had this to say: ‘I’m the chairman of the Housing Agency and I will never buy a piece of property again. I rent. We’ve completely lost connection between rental values and market values in Ireland and that still has to sink into people’s minds.’”

The Hamilton Spectator in Canada. ” The Bank of Canada said last week the country had showed signs of a ‘broadening recovery.’ However, the bank’s statement offset the positives by pointing to potential threats: weakening oil prices that drive down inflation and the significant risks of high household debt accumulated during years of low borrowing rates. The basic logic behind low rates is to encourage people to gather debt when the economy is weak, said McGill University economics professor Christopher Ragan, who has worked at the Bank of Canada.”

“He added, however, that monetary policy is a ‘pretty blunt instrument’ that can’t control those who borrow too much. ‘Some people have too much debt, but not everybody,’ Ragan said. ‘Some firms probably have too much debt, but not all firms. And monetary policy just can’t address that issue.’”

First Post on India. “In an unbelievable discount offer to beat slowdown blues, realty firm Supertech yesterday claimed to offer a free add-on studio apartment with the purchase of a luxury flat, but ‘conditions apply’ like all such schemes. o far, some realty developers have offered freebies like cars, ACs and other household items, but this one beats all such discount games that real estate companies come up with to lure buyers in a sluggish market. ‘In order to boost sales, Supertech announces buy one get one free offer on one of its residential project Capetown located in Noida. The offer is available only for the top floor apartment buyers in ‘Cape Crown’ of Capetown Project,’ the company said.”

“The project ‘Capetown’ is spread over 50 acres comprising 7,000 housing units. Supertech is currently developing over 90 million sq ft. The company has a presence in Noida, Greater Noida, Gurgaon, Meerut, Moradabad, Haridwar, Rudrapur, Ghaziabad and Bangalore.”

Nikkei Asian Review on China. “Two Chinese municipal governments have made it clear that they will not guarantee new debt issued by affiliated investment companies, removing an implicit backstop that has generally encouraged reckless infrastructure spending. The western Chinese city of Urumqi said Dec. 17 that a 1 billion yuan ($160 million) bond sale by a wholly owned financing vehicle would be canceled to protect investors. The proceeds were supposed to fund road construction, but the city saw little prospect of the project generating enough income to repay investors without government aid.”

“Subjecting municipal borrowers to some market discipline will likely help curb their enthusiasm for the kind of big-budget projects that show no regard for financial viability. This will have consequences for the national economy. Local infrastructure investment, an important driver of growth, is certain to lose steam in the coming years. As of Wednesday, no local governments had explicitly said how it would treat already-issued bonds. Saying they were not guaranteed would surely provoke opposition from the financial institutions that lend to these vehicles.”

The Sydney Morning Herald in Australia. “With the federal government fore­casting a $9 billion shortfall in ­revenue over the next two years as iron ore plunges to new five-year lows, the view of China from Australia is one of a ­country struggling to maintain the growth that turned it into a ­economic superpower. Shadow banking, ghost cities, ­slumping property prices, a ­manufacturing slowdown and debt defaults are just some of the ­headwinds that threaten the world’s second-largest economy.”

“Data from the National Bureau of Statistics showed that home prices fell for the seventh consecutive month in November. It has particularly hurt demand for Australian iron ore, as residential ­property accounts for 24 per cent of steel consumption in China. ‘From Australia it feels like China is actually having some sort of hard ­landing,’ Credit Suisse analyst Damien Boey said. The ruling Communist Party of China has to be very careful how it balances the huge capacity for fixed asset investment and consumption. ‘It’s like asking Australia to stop being a consumption and mining ­economy, we can’t do that overnight either,’ Mr Boey said.”

The New Zealand Herald. “The world economy enters 2015 at a fork in the road. One track leads to the self-sustaining vigorous recovery that policymakers have sought in vain since the financial crisis erupted in 2007. The other track leads back towards recession. Problems that have been stored up since 2008-09 can be contained no longer. Trevor Greetham, director of asset allocation at Fidelity Solutions, says the plunging oil price could prompt ‘credit stress.’ This would affect governments, such as Russia, Venezuela and Iran, that can only balance their books if the oil price is at US$100 a barrel or more. And it would affect the shale gas sector in the US, where much of the investment has been financed by high-yielding but risky junk bonds.”

“As the Bank of England points out in its recent Financial Stability Review: ‘As US oil and gas exploration firms account for 13 per cent of outstanding debt in US high-yield bond markets, an increase in the perceived or realised credit risk in this sector could lead to sales by investors and potentially illiquidity in the broader high-yield market.’ In other words, shale could be the next sub-prime.”

Bits Bucket for December 30, 2014

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