January 19, 2015

Supply Is Abundant But Demand Is Not As High As Before

The Midland Reporter Telegram reports from Texas. “As oil prices have halved in the last six months, Midland’s feverish housing industry hasn’t let up. Home builders do not see themselves pressing the brakes anytime soon. ‘We set our goal to build 300 homes in Midland in 2015,’ Claudia Valdez, marketing coordinator for Betenbough Homes in the Midland and Odessa area, told the Reporter-Telegram in a phone interview. ‘We’re not adjusting that.’ Valdez said that Betenbough currently has a three- to four-month waiting list for initial construction of a new home, and that while oil prices may be a concern, it is making people think more critically of what they wish to build. ‘I think you just have people who come through the door who are more realistic about their finances, and so they may be saying, ‘Do we really need a fourth bedroom?’ Valdez said.”

The Leader Post in Canada. “The first signs of the oil price plunge have begun to show on real estate markets in the West, according to statistics released Thursday by the Canadian Real Estate Association (CREA). CREA says the number of sales of previously owned homes was down 5.8 per cent nationally in December compared with November, with almost two-thirds of all local housing markets showing declines. Calgary and Edmonton were each down 25 per cent, while Regina saw a 12.3 per cent decline in December sales over November.”

“Robert Kavcic, senior economist with BMO Capital Markets, said the increase in supply is largely an Alberta story, where there is suddenly 4.3 months’ worth of inventory on the market versus 3.3 in November. ‘In Calgary, new listings popped 39 per cent in the past year, and, with sales sliding further in early January, prices are destined for at least a modest correction. Look for further price weakness in Regina and Saskatoon as well, and continued stagnation in Quebec - both regions have also seen increases in supply.’”

From The National. “House prices in Dubai and Abu Dhabi flatlined during the final quarter of 2014, studies showed yesterday. Average villa prices in Dubai dipped by 1 per cent during the final three months of 2014, according to the property agent JLL as the emirate’s real estate market slowed considerably in the final quarter. And, with oil prices falling and more new homes due to be completed in the emirate over the coming year, JLL said that it expected the housing slowdown to continue. ‘The residential sector is likely to remain subdued over the next 12 months as the market is expected to absorb 25,000 additional units in 2015,’ said Craig Plumb, the head of research at JLL’s Dubai office. ‘But in reality, we remain cautious of the delivery of some of these projects within the time frame.’”

The Telegraph. “UK homeowners that hold a mortgage in Swiss francs will see their monthly repayments shoot up after the country’s central bank abandoned its currency peg to the euro, experts have warned. Swiss franc denominated mortgages are held by property investors across the world with many Chinese, Middle Eastern and Russian buyers parking money in Switzerland to purchase a second homes in luxury destinations such as Monaco.”

“‘Russians love their chalets in Verbier [Swiss Alps] as much as they love their Knightsbridge penthouse,’ said Jeremy Cook, chief economist at the currency firm World First. But with rouble devaluation, the falling price, and spike in the value of Swiss assets ‘now is a very bad time to be a Russian billionaire.’”

The Straits Times on Singapore. “Private condominium rentals continued to be hammered last month as weak leasing demand and a mounting supply of new apartments weighed on the market. Ms Christine Li, research head at OrangeTee, said a sizeable number of shoebox units launched in 2010 are now being completed in city-fringe and central areas, while luxury units are facing high vacancy levels.”

“‘In the city centre, supply is abundant but demand is not as high as before because expatriates are not getting enough housing budgets,’ said Ms Li. Demand for homes with rents in excess of $10,000 is ‘really bad,’ she said, such that the gap between rents in the city centre and city fringe is slowly narrowing. But a looming supply glut is set to hit the suburbs this year, with more than half an estimated 25,000 new homes expected to be completed in the suburbs by the end of the year.”

The Diplomat on China. “In an industry of almost 90,000 property developers and falling real estate prices, some developers have felt enough strain to go bankrupt. In the first developer bankruptcy of this year, two related real estate firms in Ganzhou, Jiangxi province, Ganzhou Long Properties Limited and Ganzhou Bank and Credit Limited went bankrupt, owing more than 2 billion RMB ($320 million) in debt. In this widely publicized case, the boss was arrested on the suspicion of illegal fundraising, as the firm sold the homes to customers and also used the homes as collateral against loans.”

“In some places, the property decline has uncovered fundraising fraud among developers, as additional loans can no longer be obtained to repay investors. For example, a man named Huang Zhangbao was arrested for up to 1.2 billion RMB in illegal fundraising for a variety of purposes, including real estate development in Beijing.”

“In some cases, as developers face diminished funding streams or even bankruptcy, buyers who have already purchased unfinished homes have had to take legal recourse to protect their interests. Buyers have been forced to either wait for developers to resume construction or wait for sales of the developers’ assets to be auctioned in court to be reimbursed. When these channels fail, buyers have resorted to launching lawsuits against developers. Anecdotes of these problems abound on the internet, often describing how buyers appealed to local governments for legal protection against defaults, unfinished work, or bankruptcy.”

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