March 11, 2015

Some Of These Gains Could Be Reversed

Two Bloomberg reports on the housing bubble. “Denmark is monitoring its property market and is ready to act should the country’s efforts to defend its euro peg result in unsustainable house-price distortions. Morten Oestergaard, the country’s economy minister, says such a scenario ‘may come in the second or third wave’ of the economic cycle as the central bank drives its main interest rate well below zero to keep the krone pegged to the euro. ‘If you can make money on borrowing, it’s probably not healthy in the long run. We’ve been through a housing bubble and we’re pretty much back where we started.’”

“Norway’s biggest political group says the country’s housing market is heating up at too fast a pace for policy makers to ignore. The Labor Party wants the government to consider measures that will help Norway’s financial regulator stop a housing bubble forming, said Marianne Marthinsen, the party’s speaker on the parliamentary finance committee. ‘The development in prices is moving so fast that there is a chance that it might develop into a bubble,’ she said.”

“It’s the latest example of how low, and even negative, interest rates designed to keep down exchange rates are distorting asset prices as household reliance on leverage grows. Norwegians owe their creditors about twice as much as they make in disposable incomes, more than at any time in the country’s history. Meanwhile, house prices jumped about 9 percent in February from a year earlier to a record high.”

The Vancouver Sun in Canada. “Chinese buyers are snapping up some of the most exclusive real estate in the Lower Mainland. The latest jaw-dropping sale was a $51.8-million mansion on three lots. It comes as agents say the market is hopping with interest from buyers with cash from mainland China. These include Canadian citizens, residents and visitors. There is similar clamouring for prime properties on a smaller scale in other pockets of the local real estate market. Recently, a house at 1383 West 32nd Avenue in Shaughnessy went into contract for $8.01 million, or $2 million over the asking price of $5.99 million.”

“In West Vancouver, 118 houses were sold in February, compared to 63 the year before for an increase of 87 per cent. Of homes in the $4 million and higher category, agent Clarence Debelle of Royal Pacific Realty estimates some 75 per cent went to buyers with ties to mainland Chinese money.”

The Sydney Morning Herald in Australia. “A serious pullback in inflated asset prices could hit investor returns and the retirement savings of older Australians even harder than the global financial crisis, with popular banking stocks and hot property areas a worrying place to be, some investment experts warn. Pete Wargent, property buyer and co-founder of AllenWargent property buyers, said any further gains in popular property areas would push the market well and truly into unchartered territory.”

“‘For buyers who are getting involved in auction frenzies, there is realistically a real threat that some of these gains could be reversed. I don’t think interest rates will be what stops this property boom in parts of Sydney, Melbourne and resource rich mining towns. I think the property boom will die of old age when rental yields fall so low that investors start to question whether they stack up,’ he said.”

“‘If [the] RBA cuts rates down below 2 per cent in the near future and our currency gets down to low US70¢s, what happens when we have a Euro meltdown or Japan recession or China hard landing? We are driving very fast without seat belts. Once we use up these buffers and are sitting on asset bubbles, any macro headwind will hammer us even harder than the GFC,’ said Mathan Somasundaram, a Baillieu Holst equity analyst.”

The Strait Times on Singapore. “The combined value of private and public homes in Singapore’s north-east is $396 million less today than when they were bought, a new report has found. The report by SRX Property sought to calculate the ‘paper losses’ faced by home owners across Singapore, given the recent slide in property prices. Of the 7,619 Housing Board flats in Sengkang with caveats lodged historically, 46.9 per cent or 3,575 owners would suffer losses if they were to sell at today’s estimated market value, SRX Property said.”

The Star Online in Malaysia. “House prices have dropped after measures were put in place to check rising property prices due to speculation, says Datuk Chua Tee Yong. The Deputy Finance Minister said data from the National Property Information Centre (NAPIC) showed that there was a drop in house prices with the market slowing down from 12.2% in the third quarter of 2013 to 4.6% in the same period last year.”

“‘The drop is a result of various measures taken by the Government,’ he told reporters at the Malaysian Real Estate Convention 2015. ‘This is important. While all markets have speculators, excessive speculating will result in extreme price increases.’”

“Among measures taken to curb speculative activity included raising the real property gains tax, imposing 70% loan-to-value on housing facilities for the third property and abolishing the developer interest bearing scheme. ‘The Government has also raised the ceiling price of properties that can be purchased by non-residents – from RM500,000 to RM1mil – and this has helped as well,’ he said.”

“Malaysian Institute of Estate Agents president Siva Shanker said that while affordable housing was good, more focus should be given to properties priced between RM150,000 and RM250,000. ‘Currently, affordable housing is priced between RM350,000 and RM450,000, and perhaps this is inaccurate,’ he said. ‘To me, it is impossible for someone who earns RM3,000 to afford a property worth RM400,000. Even if his wife earns an additional RM3,000, he would still only be able to afford a house worth RM150,000,’ Siva said. He said more focus should be given to building houses worth between RM150,000 and RM250,000. ‘There is a large group waiting to buy properties in this price range.’”

The Business Standard in India. “With demand supply mismatch in Pune real estate builders are going all out to woo property buyers. Major real-estate players are resorting to home festival bonanza with discounts and gifts for buyers. ‘Like many other cities in India, Pune’s residential real estate market is currently going through a slow phase. The city’s developers are pulling out all the stops to interest buyers with their offerings, as is to be expected on a buyer’s market,’ said Sanjay Bajaj, managing director - Pune, JLL India.”

“‘We expect the sales volume to recover from H2 2015 onwards, after a lull of more than two years. There is enough availability of units in the Pune market. It will take nearly two years to offload the current unsold inventory of 67,500 units,’ said Shantanu Mazumder, director, Pune Branch, Knight Frank India.”

Bits Bucket for March 11, 2015

Post off-topic ideas, links, and Craigslist finds here.