February 3, 2015

When There Is Oversupply, This Is What Happens

The Calgary Herald reports from Canada. “Calgary’s once-booming resale housing market has taken a turn in the opposite direction. In January, MLS year-over-year sales were down for a second consecutive month — down 38.9 per cent, according to the Calgary Real Estate Board. It was the lowest level of January sales since 2009. ‘I think the January numbers are a prelude to at least a minor correction in Calgary’s housing market this year,’ said Sal Guatieri, senior economist with BMO Capital Markets. He said he would anticipate Calgary’s house prices will fall by about 10 per cent, ‘essentially unwinding all of the increase in the past year and basically taking prices back to the previous highs reached in 2007.’”

“New listings which soared to 3,288 in January, up 37.23 per cent compared with January 2014, according to statistics released by the board. ‘Economic conditions this year are expected to be weaker than original estimates provided in December 2014,’ said Ann-Marie Lurie, CREB’s chief economist. ‘If supply levels continue to rise at levels that exceed the pace of demand growth, we can expect this will start to impact prices in the city.’”

The Independent in the UK. “Aberdeen is facing a housing crisis as diving oil prices threaten to drag down the value of the city’s homes, many of which were bought with huge levels of debt in the belief that the hydrocarbon boom would continue unabated, according to an alarming new report. ‘The oil-price crash could drag down the housing market in Aberdeen and a considerable number of people could suddenly find themselves in negative equity,’ said Jeremy Willmont of the report’s author, accountancy firm Moore Stephens.”

“The number of local people with mortgages that are characterised as ‘risky’ by the Bank of England has risen by 42 per cent in the past four years. Aberdeen’s housing market is also awash with highly leveraged mortgages where borrowing has not reached, but is close to, 4.5 times the borrower’s salary, as well as ‘risky’ loans taken out before 2010, Moore Stephens contends. Aberdeen property prices suddenly slumped by 1.5 per cent in the final three months of the year, leaving the average price of a home in the Granite City at around £225,000.”

The Star on Malaysia. “Is a glut in residential property or a slowdown imminent? IFCA MSC Bhd chief financial officer Daniel Chow seems to think so. Chow was an invited speaker at a significant property event last week where one of the key speakers showed that actual sales last year for all the major players in the industry, except for one, was much lower than their forecast. ‘Everybody recorded negative. There was only one exception. The fundamental rule on economics is demand and supply. When there is oversupply, this is what happens. The increase in the supply of property is double digit every year. How can you expect the market to absorb all this? There is a limit,’ he says.”

“What he sees on the horizon is a glut by year end and the whole of next year, when the properties under the (now banned) Developers-Interest-Bearing Scheme are completed and most buyers who paid only the minimum 5 per cent down payment would have to start paying their monthly instalment and service their housing loan when the property is handed over to them.”

“‘Most are just property flippers and their whole intention is to flip it for capital gain. But what if nobody wants to buy? Do they have the holding power? Some were greedy and put in RM10K (S$3,725) into three different units instead of RM30K into one. So if the person cannot pay the monthly instalment or sell the unit then the bank will do a foreclosure,’ he says.”

The Business Times on Singapore. “While homebuyers are expected to service higher monthly mortgages on the back of rising interest rates, some consultants believe it is still an opportune time to snap up units amid falling home prices. Homeowners were caught by surprise last month when the Singapore interbank offer rate and swap offer rate, key benchmarks used to price most home loans here, shot up after years of slumber. Chua Yang Liang, JLL head of research for South-east Asia and Singapore, noted that if interest rates continue to spike further, they will have a destabilising effect on the residential market. ‘Multiple homeowners will feel the pinch, especially with the slower economic growth and rising interest rates,’ he said.”

“With a softening leasing market, owners who have over-committed to high loan quantums or are holding multiple units may face further ‘cash crunch,’ said Colliers International deputy managing director Grace Ng. Colliers estimates that some 78,402 units are expected to be completed by 2018, of which a significant 20,824 units are due to complete this year. ‘If for a prolonged period, these property owners are not able to rent out their properties and service their mortgage loans, the market could see more mortgagee sales this year,’ she added.”

From Shanghai Daily in China. “Sentiment among home buyers and real estate developers both fell in Shanghai in January, terminating a major rebound which dominated the last quarter of 2014. The purchases of new residential properties, excluding government-subsidized affordable housing, plunged 44.8 percent from December to 756,500 square meters last month, the lowest volume since September last year, Shanghai Uwin Real Estate Information Services Co said in a report. ‘It was an abrupt drop from the previous month when new home sales surged to the highest in 2014 to 1.37 million square meters, partly boosted by speculations that the city government may revoke its home purchase restriction policy,’ said Huang Zhijian, chief analyst at Uwin.”

“‘Developers should remain cautious and spare no effort unloading their stocks because the city’s inventory still remains at a very high level despite a significant rebound registered in the fourth quarter of last year,’ Huang added. At the moment, new homes available for sale stood at over 12.8 million square meters across the city, according to the city’s official real estate information website.”

From Telugu People in India. “Residential property sector continues to fare poorly in the market across India as there has been a severe decline in the launch and sale of new projects, according to Knight Frank India. Hyderabad witnessed an 18 per cent drop in sales in the second half of 2014 and new project launches have fallen by 38 per cent in the city. The National Capital Region (Delhi) is the worst-affected with a fall of 43 per cent.”

“‘The pan-India sales have been bad in the residential sector for the past three or four years,’ said Gulam M Zia, executive director of Knight Frank India. There were 35,183 unsold units in Hyderabad, which is at the bottom of the list of metro cities. ‘The housing sector is in dire state. This is because Hyderabad has a very old inventory. So it is very difficult to conduct sales.’”

Bits Bucket for February 3, 2015

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