May 12, 2015

A Familiar Theme In Real Estate Booms

CTV News reports from Canada. “Housing starts fell 59 per cent in Saskatchewan on a year-over-year basis in April, according to the latest numbers from Canada Mortgage and Housing Corp. Regina’s housing starts declined eight per cent to 117, while Saskatoon saw a whopping 79 per cent drop to 116. ‘Economic growth is moderating in Saskatchewan. We’re seeing the housing market beginning to favour the buyer,’ said Lai Sing Louie, a regional economist with CMHC. ‘Inventory levels are rising, so that’s a signal for builders to channel sales to inventory and back off a little bit in terms of new construction.’”

Todays Zaman on Turkey. “While the economy is in poor shape, while debts climb and purchasing power decreases, what are the reasons for this leap? Is it a bubble, or is it real? Figures released by the Turkish Statistics Institute indicate that March was the month with the second-highest home sales recorded to date. However, question marks begin to arise indicating that they may not be a product of a real surge in housing demand. For example, according to a sector expert who spoke to Sunday’s Zaman, a popular trend has developed where tradesmen, small producers and even individuals who are in a financial bottleneck are selling their properties to their spouses or friends on paper with the understanding that they will purchase it back. This enables them to successfully apply to banks for housing loans that usually feature lower interest rates than other types of credit.”

“Another set of figures which complicate the matter show a housing surplus resulting from an imbalance in supply and demand. For example, in 2014 1,014,000 building permits were granted. The homes in question will be finished within the year and will contribute to the housing stock. In the first quarter 115,000 new homes were sold. This means that roughly 460,000 new homes will be sold this year. In the best case scenario between 500,000 and 600,000 will be sold, while 400,000 will remain on the market.”

“Such imbalance is due to the fact that the quality of homes being produced does not correspond with the income levels of prospective buyers. For example, housing prices in İstanbul far exceed the purchasing power of households that bring in TL 4,000 and under on a monthly basis.”

Bloomberg on China. “Fitch Ratings has called real estate the ‘biggest threat’ to Chinese banks as surging loans tied to properties coincide with defaults and falling sales. Corporate loans backed by buildings have grown almost fivefold since 2008 and residential mortgages have more than tripled in the period among lenders rated by Fitch. Chinese loans secured by real estate have increased 400 percent since 2008 at lenders rated by Fitch, compared with a 260 percent rise in facilities overall, according to Fitch.”

“‘We believe a significant portion of China’s 4 trillion yuan stimulus package found its way into the real estate sector,’ the analysts said in Friday’s report. ‘The rise of property collateral is a familiar theme in real estate booms.’”

The Australian Financial Review. “Like most aspects of the Chinese economy, Sunday’s night’s move to cut official interest rates was all about property. The PBOC is trying to avoid the housing market unravelling as chronic over-supply could trigger further price falls which then cascade through property developers, households and into the banking system. Zhu Min, a deputy director of the International Monetary Fund and former PBOC official, made this clear in Washington last month.”

“He said prices were still too high and the Chinese property market would continue to ‘face downward pressure’ as there was a staggering one billion square metres of vacant commercial and residential property across the country. To put this figure into context, it’s the equivalent of 2380 Shanghai Towers – currently China’s tallest building at 128 floors.”

The Financial Times on Australia. “A sustained property market boom in major Australian cities partly fuelled by a flood of foreign money is pricing first-time buyers out of the market — and causing problems for policymakers and the country’s central bank. Prices in Sydney have surged 14 per cent over the past year and 40 per cent since mid-2012. Auction clearance rates are running at record highs as investors — who now account for half of all mortgages issued — flood the market.”

“Official figures show the percentage of property purchases made by first-time buyers fell to 13.7 per cent in February, down from 18.5 per cent in mid-2012 and a high of 30 per cent in 2009. ‘We’d prefer a house but they are just too expensive,’ says Ms Kate Homan, one dozens of people squeezed inside a two-bedroom apartment in a Sydney suburb listed for sale at A$750,000 (S$790,000). ‘The heartbreaking thing is when you come to these auctions and see investors outbidding everyone else.’”

The Business Times. “There is a ‘real concern’ about a future oversupply of properties in Iskandar Malaysia, which could mean a potential decline in the value of homes there, said Monetary Authority of Singapore (MAS) board member Lawrence Wong. According to latest data from Malaysia’s National Property Information Centre, there are nearly 336,000 new private residential units in the pipeline in Iskandar.”

“Mr Wong, putting this figure into context, said that it is greater than the total number of private homes in Singapore; he added that the figure does not include another 1,400 hectares of reclaimed land near the Tuas Second Link that will come onstream from 2020.”

“Speaking in parliament, Mr Wong was responding to Nee Soon GRC Member of Parliament Lee Bee Wah, who wanted to know the number of Singaporeans who had bought properties in Iskandar, and how Singapore banks were safeguarded against major defaults in property loans to these buyers. ‘There are many risks involved in overseas property purchases, especially in markets where there is uncertainty of supply or no effective regulation of supply,’ said Mr Wong. ‘If there is an oversupply of properties, investments can lose their value, and it will also be difficult to find tenants for an investment property,’ he warned.”

“He noted that some reports on Iskandar and Johor have highlighted ‘aggressive land banking’ by property developers. Given these indications, buyers are becoming more cautious. The Johor housing market is slowing down, with official data from Malaysia showing that the value of residential property transactions fell by 42 per cent quarter on quarter in the fourth quarter of 2014.”

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