January 27, 2015

Everyone Thought The Movie Would Never End

A report from the South China Morning Post. “Offshore bond sales by mainland property developers have stalled in January as rising investor fears of a flurry of debt defaults have junked one of the usually busiest months of the year for real estate issuance. With an estimated US$10 billion in offshore debt falling due for repayment this year and next, a bad January bodes ill for the ability of developers to refinance huge foreign borrowings. ‘Offshore refinancing will become more difficult and expensive for mainland developers this year and weaker players will suffer even more,’ Christopher Yip, a director of corporate ratings at S&P in Hong Kong, told the South China Morning Post.”

“Defaults by Kaisa Group Holdings are the main reason why investors are spooked. It was then that offshore investors realised that they ranked behind everyone else in the queue for repayment after onshore creditors asked for court protection to freeze Kaisa’s assets on the mainland. Specialist onshore financing vehicles had already launched a total of more than 10 products that extended 2.5 billion yuan in credit to Kaisa. Some of those products are due for repayment later this month and analysts expect the firm to struggle to make good on its obligations.”

“‘Trust defaults will blow up in the future given the sluggish property market,’ said specialist trust financing consulting firm Use-Trust Studio in a report.”

From Bloomberg on China. “After more than a decade of curbing the currency’s gains to help turn the nation into a manufacturing colossus, there are signs the People’s Bank of China is now propping up the yuan to stem an exodus of capital that’s threatening the economy. A key barometer of foreign-exchange flows on the central bank’s balance sheet, known as its yuan positions, fell 128.9 billion yuan ($21 billion) in December from a month earlier, the most since 2003, PBOC data show. China’s foreign-exchange reserves dropped to $3.84 trillion as of December, from an all-time high of $3.99 trillion in June.”

“Goldman Sachs Group Inc. says China’s official errors and omissions data point to a record $63 billion leaving the country in the third quarter of 2014. Bank of America Corp. estimates $120 billion of capital flowed out of China in the final quarter of last year. ‘Everyone thought the movie would never end, and suddenly it ended, so everyone is hurrying to leave,’ Kevin Lai, an economist at Daiwa Capital Markets in Hong Kong, said by phone. ‘The authorities need to think of a way to keep the audience in the theater’ as the economy slows, he said.”

“City Developments Ltd., Singapore’s second-biggest developer, warned last year that the local housing market may face ‘fire sales’ and mortgage defaults due to falling rents, especially for high-end homes. Rental prices of residential properties fell by 3 percent last year, URA data show. After five years of price gains, values are falling and defaults are rising. ‘Some of the properties in the auction are those where the owner has multiple properties and he can’t rent them,’ said Grace Ng, deputy managing director at broker Colliers International in Singapore.”

From Tribune India. “Karnal is among the cities in Haryana that have been in the grip of a severe slowdown in the realty sector for over two years now. There has been a significant drop in demand here and according to market watchers there has virtually been no sale-purchase in the city and its vicinity in one of the worst slowdowns so far. End users as well as investors have remained reluctant to enter the real estate market because of the paucity of funds, say local property experts.”

“Property prices have fallen by almost 30 to 40 per cent in most of the areas of the district. ‘I had purchased a plot in CHD City for Rs20,000 per sq yd in 2011. But now the price of the same has dropped and is between Rs13000 and Rs15000 per sq yard,’ says Vir Vikram Kumar, former president of Karnal Property Dealers’ Association. ‘But even this significant correction in the market has not brought back buyers here.’”

The Calgary Herald in Canada. “Unstable oil prices have created an unclear picture for what the city’s housing market will bring in 2015, say industry members. On the resale side, the Calgary Real Estate Board expects sales to ease by four per cent in 2015 and price growth of 1.5 per cent. Industry veteran Wendy Jabusch says she expects a slower stretch in 2015, adding the pull-back makes sense.”

“‘I think we are going to see the industry take a little bit of a pause, level off a bit and that’s perfectly fine,’ says Jabusch, Brookfield Residential’s VP of Calgary Homes. ‘What was happening over the course of these last couple of years is not sustainable. The run-up on prices, you just can’t keep increasing like that.’”

The Herald Scotland. “North Sea oil may be in decline but it is still central to the economic projections of the Scottish and UK governments. in conversation with those not employed in the oil industry, I note a surprising schadenfreude towards the current situation. While such a reaction is probably misguided, it is understandable. The presence of the oil industry has made Aberdeen an almost impossibly expensive place to live for those without oil-sector salaries. The cost of living, housing in particular, has been a major cause of the recruitment crisis in the health and education sectors.”

“The industry-wide inflated salaries are the principal cause of sky-high living costs. An acquaintance working as a contractor recently bemoaned a reduction in his day rate. It was hard to avoid responding, ‘welcome to my world.’ particularly as it wasn’t so long ago that he let me know that the rate was more than a £1,000.”

“The downturn in the price is an opportunity for the industry to take a close look at its costs. Some companies have already started the process with interesting side effects. The attendance at one company’s Christmas bash was way down on previous years. It wasn’t hard to find the reason: employees had to pay for their tickets and the bar was no longer free. Welcome to the real world.”

Bits Bucket for January 27, 2015

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