March 3, 2015

Reality And Desperation Are Going To Kick In

Bloomberg reports on the UK. “Buying upscale homes in the U.K. through trust funds and overseas-based companies is popular among the rich as a way to minimize taxes and protect privacy. The practice also makes it difficult for law enforcement and the courts to establish whether their owners bought them legitimately. Hundreds of billions of pounds classified as the proceeds of crime are laundered here every year and London’s surging property market is one of the more attractive ways to do it, according to the U.K. National Crime Agency.”

“More than 12,500 London properties worth over 48.5 billion pounds were sold by offshore companies from 2012 through 2014, Land Registry data compiled for Bloomberg News show. More than a third of the sellers were out of the British Virgin Islands. One of the biggest obstacles in tracing proceeds of crime is that law enforcement receive few reports of suspicious customer activities that are related to real estate, and those they get aren’t always useful, according to Transparency International. Just 179 of the 354,186 reports filed in the year ending in September came from property brokers.”

“‘For an individual estate agency, regular business with any high-net-worth individual can be very lucrative for the company and, therefore, there can be a lack of incentive to report of suspicions,’ said Nick Maxwell, head of research at Transparency International. ‘A similar risk arises in small practices in the legal and accountancy sector.’”

From Channel NewsAsia. “It is the height of the property selling season in Australia and the market is running hot - producing sky-high prices which many local first-time buyers cannot afford. Some are blaming the influx of foreign investors for the rise in property values, particularly the Chinese. The federal government in Canberra is now planning a crackdown on international buyers who purchase real estate illegally, forcing them to sell the property and pay back 25 per cent of the value to the government. In addition, it will be more expensive for foreigners to apply to purchase the homes that they are allowed to buy.”

“The property boom is affecting both the high-end and low-end markets, with some harbour-side homes selling for tens of millions, while properties in the cheaper suburbs are fetching sums beyond their owners’ wildest dreams. Real estate agent Catherine Murphy has never seen the market so hot: ‘I sold my own house at the end of 2013 because I thought that was the best market I’d ever seen, but this is even better than that.’”

The Sydney Morning Herald in Australia. “Sydney’s median house price went from $765,493 in the September quarter of 2013, to $872,811 in the December quarter of 2014. Fuelling demand is expectations of lower cash rates. Financial markets are now pricing in a 56 per cent chance of the Reserve Bank of Australia trimming the official cash rate from 2.25 per cent to a new record of 2 per cent on Tuesday. Roger Montgomery, of Montgomery Investment Management noted that eventually ‘the price of those assets [stocks and property] will be pushed way too high,’ he said. ‘After that, a large number of investors will, sadly, suffer financially again – from buying too late and paying too much.’”

The Malaysian Insider. “At a property fair in the SACC mall, shoppers’ faces were grim as they milled around the miniature displays of houses, each with a price tag ranging from around RM300,000 to RM1.4 million. ‘It’s unreasonable,’ said Roslan Mat Sarji, as he studied the glossy pamphlets. ‘I’m helping my son look for a house, but the ones on offer here are all out of our range. Who can actually afford to buy a house in the city in this day and age?’”

“The couple’s sentiments were a common theme at the fair yesterday, which saw a steady stream of shoppers approach the smiling salesmen for more information on the houses on sale, only to balk at the prices mentioned. It was apparent from the fair yesterday that Malaysians still needed homes to own and live in – they were just unable to afford them. ‘Many come and ask about the properties, but the moment we mention the prices of the houses on offer, their faces change and they say they will just wait and see,’ one PKNS salesmen who declined to be named told The Malaysian Insider.”

Barron’s on Brazil. “High inventories and economic pressure in Brazil’s housing will hurt builders even more, according to Citi Research, which downgraded three players to sell. Citi analysts write: ‘Consumer confidence remains low, with large uncertainties preventing buyers from engaging in big-ticket purchases, such as new homes. To top it off, most important cities in Brazil are currently oversupplied, forcing companies to decelerate new launches aggressively and concede discounts in order to reduce their inventory levels. Among the highly-leveraged peer group of PDG, Tecnisa and Rossi, we believe sales cancellations should continue, reducing cash inflows, limiting the degree of debt amortizations and forcing companies to renegotiate part of its corporate debt.’”

Albawaba on Dubai. “Declining currencies in European countries whose citizens are among the leading buyers of Dubai homes are combining with falling oil prices and a tax on foreign property held by Indians to push down home prices in the emirate. Liam Jeffrey was surprised when a couple selling an apartment on Dubai’s Palm Jumeirah artificial island asked the property broker to cut the price by 10 percent just three weeks after they put it on the market. ‘They found a property they wanted to buy in London and when they send the money back to the U.K., they make up that difference on the exchange rate alone,’ said the 26-year-old broker at Smith & Ken.”

“Jeffrey said today’s market is a change from dealing with stubborn sellers who overestimated the value of their properties. The Palm Jumeirah home he’s trying to sell hasn’t found a buyer since the owners asked him to cut the price. ‘Investors are worried that prices will fall and are simply holding off on purchases until they see which way the wind blows,’ he said.”

CTV News Calgary. “New housing numbers released by the Calgary Real Estate Board suggest housing market is down. The number of home sales in Calgary have fallen and listings have doubled which means prices are also on the way down. John Andrews is a real estate expert from Queen’s University and he says a lot of people are listing their homes out of fear, but says they may have already missed out on getting the price they hoped. ‘They’re going to hold on for a few months at that price and then reality is going to kick in, and in some cases a bit of desperation,’ said Andrews.”

“‘The vulnerabilities in China today are very similar to the vulnerabilities in Japan,’ said Roy Smith, 76, who was a Goldman Sachs Group Inc. partner when he wrote a column saying Japan’s rise as a financial hegemon was done. ‘Nobody agrees with me. But they didn’t agree with me in 1990, so at least I have one right.’”

“Among the risks: bad loans, overpriced stocks and a frothy property market are flashing danger for China’s economy and putting pressure on a fragile financial system — similar to conditions that triggered Japan’s fall, said Smith, a finance professor at New York University’s Stern School of Business. A further parallel is the burden of an aging population, with mounting pension and health-care costs, he says.”

“In 2014, the economy expanded at the slowest full-year pace in almost a quarter century. The slowdown has thrown a spotlight on a mounting debt pile that includes souring loans to local government financing vehicles, or LGFVs, which funded a boom in construction. Doubts about the creditworthiness of LGFV debt deepened last year, when Premier Li Keqiang started to pare back implicit guarantees for the regional financing units.”

“‘The Chinese financial structure is very fragile because a lot of it is misreported and will reveal a great deal of weakness when it comes out,’ said Smith, who specializes in international banking and finance. ‘They say a rising tide lifts all boats — a falling tide reveals all the rocks and slime. There was a lot of it in Japan that people did not expect to see.’”

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