April 15, 2015

The Third Episode Of The Global Financial Crisis

A housing bubble report from News day. “Take an evening stroll on either side of New York’s Central Park and you will notice how few lights are on in the newer apartment buildings. That’s because no one lives there. Across the globe, empty luxury apartments darken many of the most desirable cities—Miami; San Francisco; Vancouver, British Columbia; Honolulu; Hong Kong; Shanghai; Singapore; Dubai; Paris; Melbourne, Australia; and London. The reason: The world’s richest people are buying these grand residences not to live in but to store their wealth. In Paris, for instance, one apartment in four sits empty most of the time.”

“Some of these wealthy owners are looking for status, others a good investment. And for rich people in unstable countries, or those whose incomes depend on dubious businesses, holding real estate in foreign countries functions as private insurance. Some buyers use luxury housing to hide criminal proceeds, often acquiring their real estate through shell companies set up in jurisdictions from Wyoming to Panama to the Cayman Islands, which make it easy to conceal ownership.”

“Jane Kim, a San Francisco supervisor, said that in her downtown district ‘a lot of units are sold to international and out-of-town owners, so it is great in terms of property-tax revenues and paying into a general fund by people who do not make much use of municipal services. But it also means we are not filling the needs of people who want to live in the city, because they cannot compete’ for housing due to high prices for both owned and rented apartments, ‘even though they make good money.’”

From Bloomberg on the UK. “As housing crises in London go, it could be worse. Mayfair, the neighborhood favored by Middle East royalty and hedge fund managers, is facing a glut of multi million-pound residences. Thirty-six homes were sold in the area in the six months to the end of March, a 30 percent decline from a year earlier, according to property data provider Lonres. ‘With so many high-profile projects planned, all aimed at the world’s wealthiest, there’s is going to be no shortage of choice,’ said Alex Newall, founder of broker Hanover Private Office. ‘That’s going to put pressure on prices.’”

“‘There’s just too much planned and the market isn’t there,’ said Andrew Langton, chairman of luxury-property broker Aylesford International. ‘These developers may be caught with their trousers down.’”

The National on Dubai. “Dubai’s property market has shown more signs of a first quarter slowdown as new housing comes on stream at a time of slowing sentiment. Figures acquired from Reidin data, confirm a CBRE report last week which showed that average house prices in the city are falling for the first time since the 2008 global financial crisis wiped up to 60 per cent off property values. Some Dubai estate agents already report that they are asking sellers to drop their asking prices by as much as a fifth.”

“‘The first quarter of the year continued to see subdued activity in Dubai’s real estate market,’ said Craig Plumb, head of research at JLL’s Dubai office. ‘As Dubai’s residential market moves towards a period of correction, the next driving force is predicted to be end-users or middle-income earners, as opposed to speculative buyers.’”

This Day Live on Nigeria. “It is estimated that more than 1,000 buildings are vacant or abandoned in various cities in the country and rising. A drive around Ikoyi or Banana Island or Victoria or the Lekki-Ajah corridor, which are traditional areas where people stay for long years on the queue to get a roof over their heads, shows there are an alarming number of vacant buildings, both old and new. The same is applicable to Abuja where several properties in Asokoro, Maitama, Wuse, and Garki are lying empty.”

“In this period of economic crunch, real estate operators agree it is almost impossible to sell or rent vacant housing units and buildings across the country. ‘Those who usually buy property in bulk are not showing interest because the banks are after them to repay their old loans,’ says Ms. Bimpe Adedoyin.”

The Melbourne Leader in Australia. “Foreign investors have snapped up more than 70 per cent of development sites sold in inner Melbourne in the past few years, with most to be developed as high-rise apartments, a planning expert says. RMIT Environment and Planning Professor Michael Buxton said research showed foreign investment was about 13 per cent of turnover in the total Australian real estate market but was much higher in Melbourne.”

“And up to 60 to 80 per cent of the new inner-urban Melbourne apartment market was investor owned, made up of foreign and local investment, he said. Prof Buxton said in the 12 months to June 2013, almost $6 billion in Chinese investment was put into Australian commercial and residential property, the most investment from any foreign country. Other countries that were major buyers of Australian real estate included Canada, the US, Singapore and Malaysia. ‘Up to three-quarters or more of Melbourne CBD inner-urban brownfield land sales in recent years have been to foreign investors,’ Prof Buxton said.”

“Wesley Spencer, director of Rara Architecture, said building developments were often designed with the buyer in mind and not the occupier. He said Melbourne was forecasted to grow by a further 100,000 people by 2035. ‘Given that there are currently an estimated 65,000 vacant apartments within Docklands alone, and inner city development going strong, Melbourne will most certainly be set to saturate the real estate market in terms of supply and demand.’”

The Global Times on China. “China’s second-largest loan-guarantee enterprise has suspended its guarantee business due to a payment crisis, media reported over the weekend, a move which analysts said might have a negative effect on a number of the country’s financial institutions. Hebei Financing Investment Holding Group, which has been beset by financial problems for a long time, suspended all its guarantee business and was officially put under the control of Hebei Construction & Investment Group, the largest State-owned capital investment and operating enterprise in North China’s Hebei Province, news portal cnr.cn reported, citing unnamed sources.”

“The problem arose because a lot of small companies whose loans were backed by Hebei Financing had encountered financial problems and could not pay back their loans, Cao Xiao, a professor of finance at Shanghai University of Finance and Economics, told the Global Times. If Hebei Financing suspends its guarantee business, the 50 billion yuan’s worth of loans will face a risk of default and those financial institutions may suffer a loss, Cao said. ‘It may influence investor confidence toward those institutions, particularly the P2P lending firms which have already faced huge financial problems,’ Cao said.”

“According to news portal nandu.com’s report in December, about 50 P2P lending firms went bankrupt in 2014. The fluctuations in the financial system may continue at a time when China’s loan-guarantee enterprises are facing increased operational difficulties, Zhou Dewen, president of Small and Medium Enterprises Development Association in Wenzhou, told the Global Times. For instance, the number of loan-guarantee enterprises in Wenzhou, East China’s Zhejiang Province, shrunk from around 300 at the sector’s peak to about 30, according to Zhou.”

“Investors in Chinese junk bonds are taking the biggest gamble in at least a decade. Leverage for speculative-grade Chinese companies is at its highest since at least 2004, whether measured by earnings relative to interest expense or total debt to a measure of cash-flow, according to data compiled by Bloomberg using a Bank of America Merrill Lynch index. Borrowers have also piled on the most debt relative to their assets since 2007.”

“The deterioration in credit quality coincides with the slowest annual growth since 1990 for Asia’s biggest economy, and helps explain why Fitch Ratings Ltd. predicts defaults will climb. That’s bad timing for bond investors who swallowed a record $209.2 billion of Chinese-company notes denominated in either dollars, euros or yen last year, Bloomberg data show.”

“The typical high-yield company in China earned an average 2.7 times the interest they paid in 2014 and has about 35.5 times more debt than their yearly operating income, according to data compiled by Bloomberg using Bank of America Merrill Lynch index data. Average debt taken out by the 65 companies in the index climbed to 34.3 percent of assets.”

“‘When credit grows that fast, it’s normally a strong sign misallocations of capital have taken place,’ Sander Bus, the head of high-yield credits, and Victor Verberk, the head of investment-grade credits, at Dutch money manager Robeco Groep NV, wrote in an April 10 e-mail. ‘We wouldn’t be surprised if China, and some other emerging countries that face similar increases in debt, turns out to be the place of the third episode of the global financial crisis after the U.S. and Europe,’ they wrote.”

Bits Bucket for April 15, 2015

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