February 26, 2015

Accelerating The Burst Of The Bubble

Bloomberg reports on Denmark. “Here’s an example of some of the twists and turns that economies with negative rates might need to gird for. Seven years after Denmark’s property bubble burst, house prices in the country’s biggest cities are already higher than at any point in recorded history. Meanwhile, banks are trying to figure out how to navigate their way through the first auctions that will probably result in investors paying homeowners to borrow. In the leafy Copenhagen district of Frederiksberg, an average 140 square-meter (1,500 square-foot) house costs 1.8 million kroner ($275,000) more today than it did in 2009, according to Nybolig, a unit of Nykredit. That’s about 676,000 kroner more than at the height of Denmark’s real estate boom, which topped in 2007 and burst a year later.”

“House prices plunged about 20 percent from their peak through to their 2013 trough, triggering a community bank crisis and sending the economy into a recession. Realkredit Danmark’s 1 percent mortgage bond due April 2016 traded at about minus 0.6 percent on Friday, according to data compiled by Bloomberg. Its yield has been below zero since the end of January. Nykredit and Nordea say it makes no sense to offer new loans backed by bonds with negative rates, while Realkredit Danmark, the mortgage unit of Danske Bank, says it will continue issuance.”

“Swedes eager to buy a home in Stockholm must play by a new rule: Bid on the apartment before it’s shown to the public. The pace of housing sales in the capital city has quickened so much that buyers often have to make a deal almost immediately after the property is listed. The central bank’s move on Feb. 12 — lowering its benchmark rate to minus 0.1 percent for the first time in its 347-year history — threatens to further stoke demand in the housing market.”

“Hours after taking interest rates below zero, Riksbank Governor Stefan Ingves told Bloomberg TV that other policy makers need to tame household debt while the central bank focuses on deflation. ‘There are a number of things that others can do in order to ensure that things don’t get out of hand on the mortgage side,’ Ingves said. ‘Our households are borrowing too much, and the market is moving up, in my view, too rapidly.’”

The Globe and Mail in Canada. “Winnipeg, Montreal and Moncton are grappling with a surplus of unsold condo units driven by a surge in new construction and a dwindling supply of first-time buyers in the wake of Ottawa’s decision in June, 2012, to limit mortgage insurance to amortization periods of 25 years or less from 30 years. In Regina and Saskatoon, the number of unsold housing units hit a 30-year high, Canadian Mortgage and Housing Corporation said, the majority of them condos. Winnipeg has also seen a surge of new condo construction since 2012.”

“Montreal in particular has been grappling with a glut of unsold condos for the past two years as builders haven’t scaled back their plans in the wake of softening demand. There are now nearly 20 condo sellers for every one buyer in Quebec City and downtown Montreal, said Hélène Bégin, chief economist at Desjardins Group.”

“In downtown Montreal, a joint venture backed by Chinese investors recently broke ground on one of the city’s most ambitious condo projects, a two-phase, 800-unit project known as YUL Condominiums. ‘This is a world-class city which is still not seen as a condo market,’ said Steve Di Fruscia, CEO of Tianco Group, the Vancouver-based company developing the project with Montreal’s Brivia Group. ‘It’s just a question of time to get the local community out of the rental market and into [condos].’”

The Malaysia Chronicle. “Malaysia’s biggest reclamation project is raising concerns over a potential oversupply of homes in Johor, marine environmental damage in the Strait of Johor and the effect it may have on the livelihood of hundreds of fishermen. Some residents are making known what they think of Chinese developer Country Garden’s ambitious plan to raise four islands that total nearly three times the size of Sentosa at their doorstep.”

“Mr Samuel Tan, executive director of KGV International Property Consultants, said about 90,000 units are expected to be built by 2017. ‘Many developers in the area are already pulling their brakes. Some may cancel their plans,’ he said. Johor MP Liew Chin Tong from the opposition Democratic Action Party said: ‘There is already massive oversupply of high-end housing in Iskandar. This massive reclamation is going to accelerate the burst of the bubble… it doesn’t make economic sense.’”

Reuters on China. “The area of land used in new property developments in China fell by a quarter last year compared with 2013, state news agency Xinhua said, highlighting the extent of the country’s housing downturn. Land allocated to new real estate developments dropped 25.5 per cent last year to 151,000 hectares from 2013, Xinhua said, citing data from the Ministry of Land and Resources.”

“Squeezed by weakening demand and a glut of unsold homes, China’s property market started softening last year. Data earlier this month showed average new home prices in China’s major cities fell for the ninth consecutive month in January.”

The Australian. “Some of Australia’s most prestigious — and inflated — housing markets could come under pressure, with the government unveiling new fees and penalties for foreign buyers purchasing property. Melbourne real estate agent Jun Lu described the changes as ’short-sighted’ and the ‘wrong strategy.’ but said they would neither deter foreign investors nor fulfil the government’s purported aim of keeping houses affordable for Australian buyers. ‘This will not deter foreign investors from buying in Australia, but it will send a bad signal to the world, particularly China,’ Ms Lu said. ‘It’s saying Australia is not welcoming to investors. For most of these foreign investors, $5000 is nothing, so it won’t deter them, but it will have a long-term impact in making them think, ‘what’s the next step?’”

“As has been revealed by The Australian, the laws that prevent foreign investors buying established homes in Australia (in all but a handful of circumstances) are not being enforced. The Foreign Investment Review Board has failed to prosecute a single investor since 2006 and has not forced the sale of an ­illegally bought home since 2008. The FIRB has issued only 17 divest­ment orders in 11 years, during which time foreigners bought almost 30,000 established homes worth more than $23 billion.”

ABC in Australia. “A research company has found it is a renters’ market in Darwin, with prices diving in the past year and the number of vacant properties more than doubling. Managing director of SQM Research Louis Christopher said even with the big drop, prices in Darwin were still high. He said he thought rents could drop even further as Darwin’s commodity-driven economy weakened due to a softer mining and commodities sector.”

“Northern Territory Real Estate Institute’s CEO Quentin Kilian said the December 2014 report showed a jump in vacancies and a slump in rental prices, thanks to a saturated property market. ‘One of the reasons in the unit market is we’ve seen a large number of units come into marketplace over the last 12 months,’ he said. ‘That could have been driven by developers’ expectations several years ago of an influx of Inpex workers in the project’s early stages.’”

“However he said the number of Inpex workers looking to buy or rent was less than many expected, as workers tended to stay in temporary purpose-built workers’ villages. ‘The Inpex workforce they were hoping would come and populate those apartment isn’t doing that,’ Mr Kilian said. ‘There has not been the population growth that was expected. Therefore there is an increase in supply, but not an increased demand to go with it.’”

Bits Bucket for February 26, 2015

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