May 4, 2015

Overvalued Homes And A Glut Of Supply

A report from the New Zealand Herald. “It appears that Auckland’s housing bubble is indestructible if one bank economist is to be believed. BNZ’s chief economist Tony Alexander is forecasting the city’s house prices will go up by 14 per cent this year, just as they did last year. ‘Short of a nationwide outbreak of foot and mouth disease, Mt Rangitoto erupting, or an asteroid striking, Auckland’s house prices are likely to remain high and keep rising,’ he says in a paper called Auckland is Different.”

Estate Agent Today on the UK. “Recent figures from estate agents showing transaction volumes falling sharply have been confirmed by the registry, which says the number of completed house sales in England and Wales dropped 18 per cent in March to 53,168. The number of properties sold in England and Wales for over £1m dropped by 19 per cent to 851, from 1,049 a year earlier. This prompted a Savills buying agent - Guy Meacock of Savills’ Prime Purchase off-shoot - to describe there being ‘panic in the housing market’ as a result of recent stamp duty changes and a possible mansion tax.”

The Rio Times on Brazil. “A survey by Secovi-Rio, the city’s housing union, shows that ten out of eighteen neighborhoods in Rio saw a fall in rent in March 2015, when compared to February of the same year. This demonstrates a more significant drop than when compared to March 2014, where a decrease can be seen in eight locations. Vice president of Secovi-Rio, Leonardo Schneider suggesting that the real estate market in Rio de Janeiro is experiencing a period of transition and adjustment. ‘We had a very strong appreciation in recent years and this is changing a bit, mainly because there is more supply in the market and demand has decreased. We have seen more listings entering the market,’ he said.”

“When looking at the annual comparison in rent prices, Gávea, in Zona Sul (South Zone) has seen the largest regression with 6.81 percent. ‘[Prices in] Gávea rose because of expectations of the metro, and it was an interesting alternative to high priced Zona Sul areas Leblon and Ipanema,’ Schneider stated. ‘However, [now] a year later, these prices have dropped as if it was a wave,’ he reveals.”

The Global News in Canada. “The Canadian Mortgage and Housing Corporation is out with a report this week making some homeowners nervous. According to the CMHC, Regina is at a high risk of a housing correction, partly blamed on overvalued homes and a glut of supply. ‘Builders were a little aggressive last year with the housing starts,’ said Regina realtor Craig Adam, pointing to the Harbour Landing neighbourhood. ‘Certainly there were a lot of basements that were poured.’”

“The Archer family listed their bi-level home in Harbour Landing on ComFree for $429,900. The difficulty is the family is competing with large home builders still selling off oversupply. ‘We’re kind of not pricing over what’s being sold right now as a new model. We’re just pricing a bit under it to be a bit competitive,’ Matthew Archer said.”

“Regina has seen a huge price growth over the last decade. In 2004, the average sale price was $111,000, compared to $313,000 last year.”

Domain in Australia. “Prime Minister Tony Abbott will announce his plan to crack down on illegal foreign buyers of Australian real estate on Saturday. From December all foreign buyers will be slugged with a $5000 fee to apply to buy property in Australia. That fee will be used to fund the policing of the new rules. ‘I know from personal experience how tough it is to get into the housing market,’ Mr Abbott said. ‘I’m determined to crackdown on any illegal activity that could be putting upward pressure on property prices.’”

“Foreign buyers who breach the rules can expect to face stiffer penalties and possible three-year jail terms under new rules set to be introduced to Federal Parliament in Spring. ‘We will ensure stronger enforcement of new and existing foreign investment rules by transferring all residential real estate functions to the Australian Taxation Office,’ a statement from the government said. ‘The ATO will use its data-matching systems to identify possible breaches and the Commonwealth will pursue those foreign investors who break the rules.’”

“The announcement comes just two days after a report from the Foreign Investment Review Board showing that foreign buyers of Australian real estate had doubled in one year.”

From China Worker. “For China’s one-party dictatorship (CCP), 2015 is turning into quite a dangerous year. After years of rapid debt-driven growth and the world’s biggest construction boom, China’s economy faces a multitude of serious problems. Overcapacity, deflation, a housing slump and local government debt crisis are all acting as a drag on economic growth which by several measures has slowed to a crawl. The economy is of critical importance for any government but especially for the Chinese regime which has relied on a combination of fearsome state repression alongside sustained rapid economic growth to maintain itself in power.”

“China’s major commercial banks, ostensibly controlled by the CCP, are refusing to direct the extra cash to where the government wants it. Instead most of the extra liquidity is flowing into the stock market, which has surged by 80 percent in the past six months. Small traders are flooding into the market with four million new trading accounts opened in the last week of April alone. Around 40 percent of shares are now bought on credit and people are selling their homes to join the stock market ‘gold rush.’ According to economist Andy Xie, more than 2.5 trillion yuan of loans has poured into the stock market. Whereas China’s debt crisis is the result of huge stimulus policies to build infrastructure and housing, much of it wasted, today’s stimulus policies are creating nothing but fictitious wealth on the stock market.”

“For the CCP, a booming stock market is seen as desirable, despite its obvious dangers, partly to cushion the blow of the burst property bubble, but also to develop equity markets as an alternative source of financing for credit-starved businesses, especially private businesses. But government policy is hopping from frying pan to fire and back again – the share market rally is draining liquidity from the banking system as savers withdraw funds to join the gambling binge, thus forcing the central bank to take further easing measures to prevent a liquidity crisis.”

“A report by Reuters showed that none of the major banks have passed on Beijing’s recent policies to support the property market, which include cheaper mortgage rates and more generous lending rules for second home loans. The banks clearly do not have confidence that house prices will rebound in the short-term. ‘Banks look for good investment return, so they’d rather invest in the stock market,’ a Shenzhen property developer told Reuters.”

Bits Bucket for May 4, 2015

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