June 23, 2015

A Stress Test

A report from the National. “Last week, a group of economists, in a survey going by the rather ironic name of ‘The Lebanese Economic Outlook,’ acknowledged the elephant that many of us have noticed sitting in the room for the past two years: namely that the local housing market and construction sector have been adversely affected by the economic slowdown and are unlikely to register any growth in the immediate future. While hardly breaking news, their prognosis will be greeted with more than a dollop of Schadenfreude by first-time buyers who watched helplessly as house prices in some areas doubled between 2008 and 2012.”

“A buyer’s market? Maybe. You certainly get a lot of bang for your buck in Beirut. In the district of Ashrafieh, you can snap up a 350-sq metre apartment that would make Londoners and New Yorkers weep with envy for $1.5 million. The same property in the London Borough of Kensington, if you could find it, would cost $11.3m.”

From Bloomberg. “Singapore investors are buying fewer mansions in London after mortgage changes in the island nation limit their ability to borrow. The number of Singaporean’s buying prime homes in the capital fell 74 percent in the period from November to the end of May compared with the previous six months, according to broker Knight Frank LLP. They now make up 1.7 percent of all buyers in the city’s best districts, down from 3.8 percent in the prior period, the broker said.”

“Homebuying from ‘Singapore is very low at the moment and falling off,’ Rob Perrins, managing director of Berkeley Group Holdings, said in an interview June 17. Investors from the city state were the biggest overseas buyers of new homes constructed by Berkeley, London’s largest homebuilder, in 2013, Perrins said.”

The Business Times on Singapore. “Singapore’s housing glut will worsen in the near future as more public and private units come on stream and only start to ease from 2017, with the government potentially reviewing property cooling measures, a report by UOB Global Economics and Markets Research said. Private completions surged 52 per cent year-on-year to a 20-year high of 19,900 units in 2014, which was significantly higher than the Urban Redevelopment Authority’s (URA) projections at the start of the year, said the report.”

“Factoring in public housing supply, some 183,000 units will come on stream over the next four years, which will bring the overall housing stock from the existing 1.28 million to 1.47 million, representing a 14.5 per cent increase. ‘By location, the high-end oversupply is reflected in above average vacancy rates for the Central Region (8.6 per cent in Q1 2015). Vacancy rates in other areas have also picked up, such as in the North, up from 2.6 per cent in Q1 2013 to 11.5 per cent in Q1 2015. In the North East (Punggol, Sengkang), vacancy rates have doubled in two years and could continue to trend up amid record supply.’”

The Bangkok Post in Thailand. “The slowing economy coupled with a lack of liquidity in the system could be leading Bangkok to join some other major Asian cities that are facing a property glut as demand starts to show signs of cooling. Thailand’s property sector has been perceived to be on a never-ending up cycle for more than a decade by developers, investors and speculators alike.”

“The inventory figure for Bangkok is similar to those seen in major cities in China, where statistics show levels ranging between 12 and 33 months for residential property as of the end of last year — the highest since the property bubble emerged in China a few years ago. Major cities in India are also experiencing a property bubble.”

“At current rates, it would take two years for the market to absorb all the inventory. Sales could be slowed further by a growing belief among buyers that prices should be starting to fall after a sharp run-up over the past few years. The cost of land all across Bangkok has risen sharply, especially in areas near new or planned mass-transit lines, which has pushed up developers’ expenses and these are reflected in higher prices. Some estimate that speculative purchases of mid-range condominium projects now account for more than 30% of all units. That’s a figure that has not been seen since the frenzied period that led up to the economic meltdown of 1997.”

“James Pitchon, the executive director of CBRE Thailand, is especially concerned about the midtown area, where he estimates about 80,000 condominium units will reach the market in 2015. ‘I’m worried whether speculators can resell the units before the completion of the condos or whether end-user buyers can get mortgages successfully,’ he said. ‘It’s a stress test.’”

American Diplomacy on China. “In March David Shambaugh published an op-ed piece in The Wall Street Journal under the headline, ‘The Coming Chinese Crackup.’ Shambaugh cites five ‘telling’ indicators that point to a coming collapse. The first is the rising number of defections of those who have profited most from the present regime: Party officials and private entrepreneurs.”

“Shambaugh says, ‘First, China’s economic elites have one foot out the door, and they are ready to flee en masse if the system begins to crumble.’ Many have noted the startling outflow of capital from China and the increasing numbers of affluent Chinese students traveling abroad. Shambaugh cites a survey by the Hurun Research Institute in Shanghai which showed that 64 percent of China’s wealthiest individuals were either emigrating or planning to do so. ‘Wealthy Chinese are also buying property abroad at record levels and prices, and they are parking their financial assets overseas, often in well-shielded tax havens and shell companies.’”

“Then there is the major problem of ubiquitous corruption. ‘Fourth, the corruption that riddles the party-state and the military also pervades Chinese society as a whole.’ Everyone agrees that corruption extends into every corner of Chinese society, from army generals to party officials and business executives. ‘The trouble for China is that the public knows only too well that corruption is not simply a by-product of the system,’ says John Sudworth. ‘It is the system.’ A video briefly displayed on the internet showed local reporters questioning a group of children on their career ambitions. When asked what he wanted to be when he grew up, one six-year-old boy said, ‘I want to be an official.’ What kind of official? he was asked. ‘A corrupt official,’ he replied, ‘because they have lots of things.’”

The Property Observer on Australia. “LF Economics duo Lindsay David and Philip Soos have lobbed their submission, titled The Great Australian Household Debt Trap: Why Housing Prices Have Increased as the first presentation to the House of Representatives Standing Committee on Economics 2015 Inquiry into Home Ownership. But at the same time they claim this latest housing inquiry is a ‘transparent political ploy’ to avert implementing a raft of genuine policies that would impinge upon the government-supported ability of the FIRE sector to siphon record-breaking profits from the economy and labour through the extraction of economic rents, primarily usury and land rent.”

“‘Given that very few, if any, recommendations from previous inquiries have been implemented, there was little need to hold the recent inquiry into the housing sector,’ the submission says. ‘The Australian public would be far better served if an alternate inquiry were to be held that investigated ways to democratise the clearly malfunctioning political system which regressively only assists Australia’s army of private monopolists, usurers, speculators, rent seekers, free riders, financial robber barons, control frauds, inheritors and indolent rich.’”

“‘It is high time the nation’s politicians, political parties, public executives, top-level public economists, regulators and bureaucrats have their power over policymaking significantly restricted by and for the benefit of the public and common good. It is this self-interest that has helped to perpetuate the largest debt-financed real estate bubble in Australia’s history.’”

Bits Bucket for June 23, 2015

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